A valuation metric that compares a company's market value to its book value, calculated by dividing share price by book value per share. It indicates whether a stock is trading above or below its accounting value.
Developed alongside book value accounting in the early 20th century, gaining prominence with Benjamin Graham's value investing approach in the 1930s. The ratio reflects the fundamental question of whether market price aligns with underlying asset value.
Price-to-book ratio is like comparing the price of a house to its property tax assessment - it tells you if you're paying more or less than the 'official' value! But here's the twist: in our knowledge economy, companies like Google trade at 5x book value because their real assets (data, algorithms, talent) don't show up on traditional balance sheets.
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