This is the relationship between the market capitalisation of a firm and the value of its assets as viewed by an accountant (“the book”).

It is normally expressed as a ratio, so if a firm’s market capitalisation is, say £500m and the book value of its assets is say £250m, the price to book ratio is 2. High ratios tend to suggest a firm is popular and may therefore not be a bargain. Low ratios on the other hand may suggest a firm is undervalued by the market. Care is required, however, when using this metric as a low ratio may also reflect hidden problems and liabilities that some investors will miss.

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