Meaning and example
P/B compares the market valuation of the owners’ stake with its carrying value. In a common analytical calculation, market capitalization is divided by the corresponding equity. You can use the share price and book value of equity per share if the share classes and the other inputs are consistent.
If a hypothetical company has a market capitalization of 900 thousand roubles and corresponding reported equity of 600 thousand, P/B is 1.5. This does not mean that a buyer receives assets with a guaranteed value: assets may be measured under accounting rules and may not be sold for that amount.
Limits of comparison
P/B is especially sensitive to asset quality, impairment and unrecognized intangible resources. A value below one does not automatically indicate a bargain, and negative equity makes the usual comparison unreliable. The ratio is useful only together with profitability, balance-sheet composition and industry characteristics, not as an independent signal to buy a share.
Related reading: [market capitalization and multiples](/guides/market-cap-and-multiples/), [peer comparison](/guides/peer-comparison/) and [equity](/glossary/sobstvennyy-kapital/).