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Price-to-Book Ratio

On 09/01/2010, in Equities, Investment Strategies, by Jordan Wilson

Another common analytical calculation is the price-to-book (P/B) ratio.

This is popular among value investors.

While price-to-earnings considers a company’s future earnings potential as a way to determine share price, P/B incorporates what the company owns.

Not a ratio that I find very useful, but many others do, so you shall not suffer for my biases.

We will cover how to calculate and use P/B ratios, followed by limitations in the ratio’s effectiveness. Then I will show you how to make the P/B ratio a little more practical. 

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