Stock Market Investors » Pick a Stock Guides » Price to Book Ratio Calculation

Price to Book Ratio Calculation

Value investors search for companies that have been overlooked by the market. This means that they are not in the general attention of the other investors, but still provide opportunities for high returns.

The key to the success of value investors is that they manage to find companies that are in their beginning of development and nobody else has yet noticed them. Value investors make a long-term investment in the company and patiently wait until the company develops to its full potential. This is the time when the other analysts also notice the potential of the company and the big bidding begins. As a result of his/her perspicacity the value investor collects his/her fat profits.

When deciding on a particular company, value investors look at such indicators as earnings growth, price to book ratio (P/B) and several others.

P/B represents the value that market has set on the book value of the company of interest. The following formula is used for the calculations of Price to Book ratio:

P/B = Share Price / Book Value per Share

The share price you take in the numerator is the current price per share of the company's stock.

How we interpret the results? The lower the P/B is, the better the value. This means that value investors look for companies, which have low P/B indicators.

To be a successful investor you need two main things - the knowledge and the right trading platform. For a trading platform we can recommend try you Zecco and TradeKing.
Zecco offers free stock trades, no account minimum, real time quotes, trading community, and is also insured and protected against loss by SIPC. Opening a Zecco account to benefit from $0 Stock/ETF trading is a smart idea. Free stock trades allow you to preserve more of your wealth and save money, which you can invest instead of paying brokerage commissions.
TradeKing has been rated #1 Discount Broker by SmartMoney’s (the Wall Street Journal Magazine) annual US broker survey. It was also awarded the highest 4-star ranking in Barron's survey of Best Browser-Based Online Brokers. TradeKing platform features real-time portfolio information, advanced order entry, stock, option and mutual fund screeners, customized charting and alerts, volatility charts, a pricing probability calculator, free research and integrated news, and interactive educational information. Open a TradeKing account and get $50.

Article Tools
Rate this article : Low
  • Currently 2.3/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
High
Bookmark this page :


Related terms: price to book ratio, value investors, pb ratio, value investing, p b ratios, value investment, price to book ratios