Price to Book Ratio

The Price to Book Ratio is a measure of a company's common stock price in relation to the book value of each share.  The price to book ratio is a high-level indicator of whether or not a company's stock price is undervalued.  The calculation for a company's price to book ratio is as follows:

Stock Price per Share / Book Value per Share

The price to book ratio can vary significantly by industry, but generally, the higher the price to book ratio, the more valued a company.  A price to book ratio below 1.0 indicates a problem exists with the company, or the market is not valuing it correctly, since a share of stock is worth more than it is selling for on the market.