Price-to-Book Ratio
The price-to-book ratio (P/B) compares a company's market capitalization to its book value (net assets), offering a measure of how much investors are paying above — or below — the accounting value of the firm's assets.
The price-to-book ratio was popularized by Benjamin Graham, the father of value investing, who used it to identify stocks trading below their liquidation value. The ratio divides the current stock price by the book value per share, where book value equals total assets minus total liabilities. A P/B below 1.0 theoretically means you can buy a dollar of net assets for less than a dollar — a potential bargain, or a warning sign of deep trouble.
Berkshire Hathaway has long been analyzed on a P/B basis. Warren Buffett himself once used P/B as a benchmark for buybacks, stating Berkshire would repurchase shares when the price fell below 1.2 times book value, signaling his view that the intrinsic value exceeded book. Over time, however, Buffett shifted away from this rigid threshold as the business evolved toward capital-light compounders.
P/B is most meaningful for capital-intensive industries: banks, insurance companies, industrial manufacturers, and real estate firms. For a bank like JPMorgan Chase, a P/B ratio tells you how the market values the loan book, deposits franchise, and capital cushion relative to accounting net worth. Banks trading above 2x book are generally considered high-quality franchises; those trading at or below book may signal concern about asset quality.
The ratio loses meaning for asset-light businesses. Alphabet (Google) and Meta generate enormous profits from intellectual property, algorithms, and brand — none of which appear on the balance sheet at anything close to their real economic value. As a result, tech giants often trade at very high P/B ratios, not because they are overpriced, but because GAAP accounting does not capture intangible assets. Applying a P/B lens to a software company tells you almost nothing useful.
Tangible book value per share strips out goodwill and other intangibles, providing a more conservative asset floor. After major acquisitions, a company's reported book value swells with goodwill, and tangible P/B cuts through that noise. Investors use P/B alongside P/E and EV/EBITDA to build a fuller picture of whether a stock offers a margin of safety.