Profitability and efficiency ratios
P/B — price to book (P/VP)
3 min
The price-to-book ratio — P/B, or P/VP (preco / valor patrimonial) in Brazil — compares the market price to the accounting net worth (book value) of the company.
The formula
P/B = Share price / Book value per share
where book value per share = Equity / Shares outstanding.
A worked example
Equity (patrimonio liquido) is 400 across 100 shares, so book value per share = 4.00. The share trades at 6.00:
P/B = 6.00 / 4.00 = 1.5
The market values the company at 1.5 times its accounting net worth. P/B below 1 means the market prices the company below the stated value of its net assets — sometimes a bargain, sometimes a signal those assets are worth less than the books claim.
Where it works and where it fails
- Useful for asset-heavy businesses — banks, insurers, real estate — where the balance sheet closely reflects real value.
- Misleading for asset-light businesses — software, brands, services — whose value is people and intangibles barely captured by book value, so a high P/B is normal and not a warning.
- Watch for goodwill inflating equity. P/B looks reassuring while resting on a soft intangible that could be written off.
P/B pairs naturally with ROE, the next lesson — a high ROE usually justifies a higher P/B.
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