Book Value Definition
Book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset minus the accumulated depreciation. Or the net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.
Also known as “Net Book Value (NBV)“. In the U.K., book value is known as “Net Asset Value“.
Price-to-Book Ratio or P/B Ratio
The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company’s current market price to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.
Also known as the “Price-Equity Ratio“.
A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company.
Most ratios change by industry, that’s why at Unicorn Bay, we have special signals for Price-to-Book Ratio. We compare company’s PB Ratio with sector’s average and industry’s average and alarm in case it higher or lower. Here is an example of Tesla Motors (at Mar 10, 2016):
Good luck in investments!