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How to calculate the price-to-book ratio?

The price-to-book ratio is calculated by dividing a company’s stock price by its book value per share, which is defined as its total assets minus all liabilities (i.e. net assets or shareholders equity). This is another indicator for determining if a company is either over or under valued.

The example below illustrates how two companies in different markets would calculate the price to book ratio:

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  • How to calculate the price-to-earnings ratio (P/E ratio)?

    The P/E ratio is most commonly used for the valuation of equity securities. The rationale for this is that earnings are the key driver of the investments value. Below is an example of how to calculate the PE ratio for two difference companies. As you can see, a higher share price isn’t always a good thing. Comparing the trading multiple will help you understand how the stock is trading relative to its peers.