Price to Book (P/B) Value Ratio and Equity Valuation

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P/B = market price per share / book value per share

  • Book Value per Share = Common Equity / Common Shares Outstanding

  • Common Equity = Total Equity - Preferred Equity

Positives of P/B

  • Book value is usually positive.
  • Many financial services companies trade close to their book values.
  • Book value is less volatile than earnings.
  • Stock return trends can be analyzed within the context of differences in P/B values.

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