Price to book

Book value is what the balance sheet says the owners' stake is worth: everything owned, less everything owed. Price to book compares the market's valuation against that number, and the gap between them is everything the accounts do not capture — brands, know-how, customer habit, and expectations.

It was once a central valuation tool and has become a specialised one, because the modern economy's most valuable assets are the ones accounting refuses to record.

A market capitalisation of $3,000m against shareholders' equity of $750m.

1. 13,000 / 750 = 4.0.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• It is most useful for banks and insurers, whose assets are largely financial and marked close to a real value.
• Below 1x means the market values the company at less than its accounts say it is worth, which is either an opportunity or a prediction that the assets are overstated.
• Read it with return on equity. A high price to book is justified by a high return on equity and by very little else.

• Internally built intangibles are absent from book value, so asset-light companies show enormous multiples that mean almost nothing.
• Buybacks reduce equity, so a company returning capital can push its price to book up while nothing about the business changes.
• Negative equity, which follows large buybacks or years of losses, makes the ratio meaningless rather than merely high.

Computed from market capitalisation and shareholders' equity and shown among the headline metrics on a stock page. It is deliberately not one of the scorecard's valuation metrics: across a universe that spans software, banks and REITs, book value is too inconsistent a denominator to score against fixed bands.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.