What is a good price-to-book ratio?

It depends heavily on the sector. Banks and financial companies typically trade at 1x–2x book. Industrial and consumer companies trade at 3x–6x. Technology and asset-light businesses often trade at 10x–30x+ book because most of their value is in intellectual property, brand, and software — none of which appears on the balance sheet at full value. For value investing, a P/B below the sector average with improving return on equity is a positive signal.

Why do tech companies have such high P/B ratios?

Tech companies are primarily valued on earnings power, intellectual property, brand, and software — none of which shows up at fair market value on a GAAP balance sheet. A software company's most valuable asset (its codebase and customer relationships) is expensed immediately rather than capitalized, making book value very low relative to economic value. This is why P/B is most useful for asset-heavy sectors like banking, manufacturing, and real estate, and less useful for asset-light tech companies.

What is return on equity and how does it relate to P/B?

Return on equity (ROE) = net income / book value. A high ROE justifies a high P/B ratio — if a company generates 25% ROE, it creates $0.25 of earnings for every $1 of book value, which deserves a premium multiple. Low ROE with high P/B is a red flag. The most durable value investments combine low P/B with improving or stable ROE — they're buying high-quality assets at a reasonable price.

Price-to-Book (P/B) Ratio Calculator

Calculate a stock's P/B ratio, see what premium or discount the market assigns relative to book value, and compute the Graham Number as a conservative fair value benchmark.

Stock Price ($)

Book Value Per Share ($) Total equity ÷ shares outstanding (found on balance sheet)

EPS ($) — for Graham Number Trailing twelve months EPS

Return on Equity (%) Net income ÷ book value (annual)

Sector

Price-to-Book Ratio

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Book Value Per Share

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Accounting net asset value

Premium to Book

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Market price vs book value

vs Sector Avg (P/B)

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Graham Number & Fair Value Context

Graham Number

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√(22.5 × EPS × BVPS)

ROE-Implied Fair P/B

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ROE ÷ required return (10%)

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What Is the Price-to-Book Ratio?

The price-to-book (P/B) ratio compares a stock's market price to the company's accounting book value per share. Book value is what shareholders would theoretically receive if the company were liquidated — total assets minus total liabilities, divided by shares outstanding. A P/B of 2.0 means the market values the company at twice its accounting net worth.

P/B is especially useful for asset-heavy businesses — banks, insurance companies, industrial manufacturers, and real estate companies — where the balance sheet accurately reflects much of the business value. It's less useful for asset-light companies (software, consulting, brand-driven consumer businesses) where most of the value resides in intellectual property, brand, and customer relationships that don't appear on a GAAP balance sheet at market value.

The Graham Number: A Conservative Fair Value Benchmark

Benjamin Graham — Warren Buffett's mentor and the father of value investing — developed a formula combining P/E and P/B into a single conservative fair value estimate:

Graham Number = √(22.5 × EPS × Book Value Per Share)

The 22.5 comes from Graham's rule that a stock's P/E should not exceed 15x and its P/B should not exceed 1.5x — and 15 × 1.5 = 22.5. A stock trading below its Graham Number may be undervalued in Graham's framework; above it suggests a premium to conservative fair value. Graham designed this for defensive investors — it deliberately ignores growth potential and is a floor estimate, not a target price.

P/B Ratio by Sector

Sector	Typical P/B Range	Why
Technology	8–20x+	Intangible assets (IP, software) not fully on balance sheet
Consumer Discretionary	4–8x	Brand premium over tangible assets
Healthcare	3–6x	R&D pipeline value not fully captured in book
Industrials	3–6x	Mix of tangible assets + brand premium
Utilities	1.5–2.5x	Regulated returns; asset-heavy but earnings-limited
Energy	1.5–3x	Commodity sensitivity; depleting assets
Financials / Banks	1–2x	Book value closely tracks economic value; regulatory capital

ROE justifies P/B. A company earning 25% ROE (return on equity) is generating $0.25 of earnings for every $1 of book value. That high return on assets deserves a high P/B multiple. A quick sanity check: if you require a 10% annual return and the company earns 20% ROE, a fair P/B is roughly 2.0x (20%/10%). A company earning 5% ROE deserves a P/B near 0.5x — below book is reasonable. High P/B + high ROE = quality; high P/B + low ROE = overvaluation risk.

Use the P/B ratio alongside P/E for a fuller picture. A stock that looks cheap on P/E might have a balance sheet loaded with goodwill from overpriced acquisitions, making book value unreliable. Use the P/E ratio calculator to check earnings-based valuation, and the EPS growth calculator to model how future earnings growth changes the picture. For a complete framework on interpreting all three together, see the stock analysis guide.

Frequently Asked Questions

What does a P/B ratio below 1.0 mean?

P/B below 1.0 means the market values the company at less than its accounting book value. This can signal undervaluation — or that book value overstates real asset quality (goodwill from overpriced acquisitions, inventory that has depreciated). For banks, P/B below 1.0 often signals concerns about loan quality or return on equity. Always investigate why the P/B is low.

What is a good P/B ratio?

Depends entirely on sector. Banks at 1–2x P/B can be fairly valued; tech companies at 15x P/B can also be fairly valued if they earn high returns on equity. The most useful benchmark is the sector average and the company's ROE. High ROE justifies high P/B — if the company generates 25% ROE consistently, the market should value it well above book.

What is the Graham Number?

Graham Number = √(22.5 × EPS × BVPS). Developed by Benjamin Graham, it's a conservative fair value estimate combining P/E (capped at 15x) and P/B (capped at 1.5x). Stocks below their Graham Number may be undervalued in Graham's framework. It works best for stable, profitable companies — not high-growth tech or unprofitable startups.

Why do tech companies have high P/B ratios?

Software, IP, and brand value are not fully reflected in GAAP book value. A software company's codebase (worth billions) is expensed immediately rather than capitalized. So book value dramatically understates economic value, making P/B appear high — but correctly so. P/B is most informative for asset-heavy sectors where book value closely tracks replacement cost.

How do I find book value per share?

Book value per share = total stockholders' equity ÷ diluted shares outstanding. Both are on the balance sheet in the company's 10-K or 10-Q filings. Financial data sites (Morningstar, Macrotrends, Yahoo Finance) also list it directly as BVPS in the balance sheet section. Use the most recent quarter's figure for the most current data.

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