Equity · Core
Price-to-Book Ratio
Price-to-book is market cap divided by book equity — what the market pays per unit of accounting residual.
Definition
P/B = market capitalization / book equity (sometimes tangible book). Banks and insurers are still read on P/TBV. Asset-light compounders often have tiny book and huge P/B because the franchise is not on the sheet.
Why it matters
Value factors and bank stress all use book. A low P/B can be cheap assets or a franchise that is dying.
Case
Regional banks after a rate shock trade at 0.6× tangible book. That is either a mark-to-market gift or a deposit-franchise warning. The ratio does not tell you which.
How to read it
Use tangible book for financials. For asset-light names, P/B is a curiosity; ROE × P/B ≈ P/E is the identity to check.
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