The price-to-book (P/B) ratio compares a company's market capitalization to its book value, which represents the net asset value on the balance sheet. It is calculated as: P/B Ratio = Stock Price / Book Value Per Share, where book value per share equals (Total Assets - Total Liabilities) / Shares Outstanding. This metric is widely used in value investing to assess whether a stock is trading above or below the accounting value of its net assets.

A P/B ratio below 1.0 means the stock is trading below its book value, which can indicate an undervalued opportunity, though it may also reflect fundamental problems with the business. A P/B ratio above 1.0 means investors are paying a premium over book value, which is common for companies with strong earnings growth, valuable intangible assets (such as brands and intellectual property), or high return on equity.

The P/B ratio is most useful for capital-intensive industries such as banking, insurance, real estate, and manufacturing, where tangible assets form a large portion of company value. It is less meaningful for technology or service companies whose value derives primarily from intangible assets that may not appear on the balance sheet. Investors typically compare P/B ratios across companies within the same industry to identify relative value.