Price-to-Book Ratio

The price-to-book ratio (P/B) is the price of the stock in relation to the book value of the company.

For example: if the price-to-book ratio is 0.9, then the price of the stock is less than the value of the company. This may mean that the company is undervalued in relation to it’s book value.

Price-to-Book Ratio < 1

Current Ratio > 1

Quick Ratio > 1

Price-to-Earnings Ratio

Some people look for stocks with a low P/E ratio. The P/E ratio is the price of the stock in relation to (or divided by) it’s earnings. For example, a stock may be trading at 10.00 with earnings of 1.00 per share. The P/E ratio is 10:

10.00/1.00 = 10

Another example is a stock whose price is far greater than it’s earnings, such as P/E over 100. This means the price is 100 times the company’s earnings.