Price-to-Book Ratio (P/B).

The price-to-book ratio (P/B) compares a company's market capitalization to its book value — the accounting value of shareholders' equity as recorded on the balance sheet. It is calculated by dividing the current share price by book value per share, or equivalently, market cap by total shareholders' equity. A P/B below 1.0 means the market values the company at less than its net assets would be worth if liquidated today, which historically attracted deep-value investors who believed the gap would eventually close. Benjamin Graham, the father of value investing, used low P/B ratios as a primary screening criterion for identifying undervalued stocks. Over time the metric's reliability as a standalone signal has diminished because the modern economy runs increasingly on intangible assets — brand value, patents, software, and human capital — that accounting rules largely exclude from book value. A technology company with modest tangible assets but enormous franchise value will naturally carry a high P/B. Comparing P/B ratios across sectors is therefore most meaningful within capital-heavy industries — banking, insurance, manufacturing, utilities — where assets on the balance sheet closely approximate real economic value. Within financial services, regulators and analysts pay close attention to whether banks trade above or below book value as a signal of franchise health and return quality. A bank consistently earning above its cost of equity trades at a P/B premium; one that struggles to cover its cost of equity may trade at a discount.