Price-to-Book Value (P/BV)

P/BV = Market value of equity / book value of equity = market price per share / book value per share

Advantages:
· Usually positive
· More stable than P/E
· useful for finance and commodity firms and for firms that have negative earnings
· Studies have indicated low ratio outperform low ratio

Disadvantages:
· high P/BV can result from high amount of fixed assets at historic cost
· low P/BV can occur when assets (bad debts) with less than bookvalues
· BV does not include non-physical assets e.g. patents
· May not be comparable between companies
· Accounting conventions cause differing BVs
· Book value is not an accurate measure of actual market value.

Note:
· Book value is commonly adjusted to tangible book value and balance sheets are adjusted for significant off-balance-sheet assets and liabilities.