Price to Book Value
Price-to-Book Value measures the value of a company against the book value of its assets. Asset values are based on the purchase prices and the principal of accruing the costs to the profits they generate.
Price-to-Book Value measures the value of a company against the book value of its assets (as shown on its balance sheet).
Price-to-Book Value Calculation
Price-to-Book Value Interpretation
Asset values shown in the balance sheet are based on the purchase prices of the assets and the principal of accruing the costs to the profits they generate.
Because the value of assets shown in the accounts does not necessarily reflect either the market value of its assets, or their value to the company (which depends on what effect they have on future cash flows), the Price-to-Book Value ratio is not widely used.
Price-to-Book Value is most often useful with sectors in which the value of a company depends largely on what assets it owns and those assets are accurately recorded in the accounts. These sectors include investment trusts and property-based companies.