P/B ratio

Is a term that stands for "Price to book value". This fundamental value comes from a formula that is similar to:

The market value of a company / the equity the company holds.

- We can calculate the market value of a specific company by taking a price per share * number of outstanding shares.

- The equity of a company is calculated by taking all assets - debt. All the information about these figures can be found in the annual report / quarterly report of the company, or by searching online.

P/B is as you can see from the formula above a specific number, such as 2. But what does this number mean? Different fundamental investment strategies state that the P/B ratio should be within a certain level. The ratio can also be used to compare companies in the same industry / sector. Different industries / sectors have different figures that are "good" based on how growth etc. is in the industry.

In any case, a company will have "healthier" fundamental values ​​if the number is as low as possible. The figure thus stands for how much equity there is in relation to the market value of a company. A P/B of 3 will mean that you pay 3 times the equity in the company. It will therefore give you some sort of indication of what you would get back if the company went bankrupt.