Organizations utilize the price to book ratio (P/B ratio) to contrast a company's market cap with its book value.
It's determined by dividing the organization's stock price per equity share by its book value per equity share or BVPS.
An asset's book value is equivalent to its carrying value on the balance sheet, and organizations compute it netting the asset against its accumulated depreciation.
Book value is likewise the net asset value of an organization computed as total assets subtracted by intangible assets (goodwill, patents) as well as liabilities.
For the first expense of an investment, book value might be net or gross of costs, for example, trading costs, sales taxes, and service charges.
A few people may know this ratio by its less normal name, price equity ratio.
In this equation, book value per equity share is determined as follows: (total assets - total liabilities) / number of outstanding shares).
Market value per equity share is acquired by simply looking at the stock price quote in the market.
Price To Book Ratio or P/B Ratio = Market Price per equity share / Book value per equity share
A lower P/B ratio may imply the security is undervalued.
Nonetheless, it could likewise mean something is on a very basic level wrong with the organization.
Similarly as with most ratios, this differs by industry.
The P/B ratio additionally demonstrates whether you're paying a lot for what might remain if the organization went bankrupt immediately.