The Book Value and Price-to-Book Ratio (P/B Ratio) Explained: From Definition to Formulas & Examples

While the book value and price-to-book ratio (or p/b ratio, to keep things simple) aren't necessarily the most well-known metrics in the world, having them in your toolbox might just prove to be asymmetrically in your favor as an investor or trader.

In just one minute, the book value as well as the p/b ratio have been explained, an explanation which takes us from the basics (definition and formulas) to logical examples.

From the perspective of an investor who is interested in doing his homework, you will find out everything you need to know about these metrics.

Will you become a rockstar investor by understanding the book value?

The same way, is the price-to-book ratio something that can and will turn any losing investing/trading strategy around?

Of course not.

As explained in this video, these two metrics have clear limitations and there's absolutely nothing wrong with that.

Why should the book value or p/b ratio solve all of your problems as an investor or trader? Isn't it enough that they simply make any existing strategy a little bit better and a little bit more informed? As any wise investor can confirm... a solid career is not necessarily built exclusively via home runs :)