Beginner's guide to investing: the price-to-book ratio

By Deputy editor Tim Bennett Oct 22, 2010

Tim Bennett

Share with
friends:

Comments (11) Print this article

The latest in Tim Bennett's video tutorials for novice investors. An explanation of the price-to-book ratio, a widely-used valuation yardstick

• Watch all of Tim's video tutorials here

Price to book ratio

Price-to-book value ratio (p/bv) is a widely used valuation yardstick. It is calculated by dividing the current share price by its book value per share. You can work this out by taking the book value (all fixed and current assets minus current and long-term liabilities) and dividing by the total number of shares in issue.

A p/bv of less than one suggests that the market is valuing the company at less than the value of its assets, and that it may therefore be cheap. But p/bv should be interpreted with care. Although it works well when analysing companies that have high levels of tangible assets, it is less helpful when looking at those that have large amounts of goodwill or intellectual property on their balance sheets.

• Entry from MoneyWeek's Financial glossary.

Comments (11)

Published in Video tutorials | More articles by Tim Bennett

Share with
friends:

Related articles

Comments

Leave a comment

  • 1. Charles Williams

    (23 October 2010, 12:00PM)  Complain about this comment

    Brilliant! Just watched Tim's " A begineers guide to price to book ratios etc." Very well presented, straight forward explantion by Tim and what these days must be a novel approach he uses a white board to demonstrate how to calculate the p/e ratios. A better way to demonatrate in my opion than using Powerpoint.

  • 2. Derek Timmins

    (23 October 2010, 12:04PM)  Complain about this comment

    Excellent innovation and tecahing by an expert. I would like to have transcipts also please so we can build a beginners library. At a later dtae perhaps include more advanced tutorials.

    Thank you

    Derek Timmins subscriber to Moneyweek

  • 3. geoffrey morris

    (23 October 2010, 12:51PM)  Complain about this comment

    Well - it dosen't come much simpler than that. Great demo. Thanx.

  • 4. redcarpdog

    (23 October 2010, 01:08PM)  Complain about this comment

    Excellent !More of the same in the future please.

  • 5. Alan W Young

    (23 October 2010, 01:28PM)  Complain about this comment

    Very Good - one of those things I wanted to ask about but was to embarressed to do so! I can now impress all my Friends!

  • 6. Jeffrey Carter

    (23 October 2010, 09:41PM)  Complain about this comment

    Really good, so simple, and useful. I need to watch them all, I think. Looking forward to that.

  • 7. Mark

    (24 October 2010, 08:28PM)  Complain about this comment

    Like it!

  • 8. Peter

    (24 October 2010, 08:55PM)  Complain about this comment

    I now look forward to Tim's videos each weekend.

  • 9. Bob Towers

    (25 October 2010, 04:52PM)  Complain about this comment

    Very well explained. I had read this explanation ages ago and had forgotten it. Thanks for making this clear and presented in a way that is simple to understand.

  • 10. Sergiy

    (28 October 2010, 10:17AM)  Complain about this comment

    Very understandable indeed! Good job, guys!

  • 11. charlie

    (06 November 2010, 05:12PM)  Complain about this comment

    the magic of finance:
    problems:
    1) assest value is only of interest the moment you want to break up the company in a fire sale and WHO KNOWS what price they will fetch. Should we trust the audited figures...how are they derived?
    2) Can we not think of company as a machine that generate cash flow in the same way as we value a bond. Therefore surely better to discount estimated future earnings. This allows for a lot more alchemy thus making share prices entirely unpredictable

    hehe pick a number any number!

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


>