P/B ratio

The P/B ratio compares market price to book value — the accounting measure of a company's net assets (assets minus liabilities) after depreciation and amortization. A P/B of 1.0 means the market values the company at exactly the accounting figure; 3.0 means three times that figure; 0.8 means the market thinks the assets are worth less on the open market than on the books.

P/B is more stable than P/E because book value doesn't swing with quarterly earnings. That makes it useful for comparing cyclical and financially complex businesses — banks, insurers, real estate — where earnings can be lumpy or accounting-driven but the asset base is solid.

P/B is less meaningful for asset-light businesses. Software companies, consulting firms, and brands derive most of their value from intangibles that accounting rules often under-record or don't record at all. Their P/B ratios can look distortedly high without that telling you anything useful about valuation.