Price-to-Book Value Ratio

Also known as price to book (P/B) ratio, measures the relationship between the market price of an equity share (MPS) with book value per share (BPS). Thus,


The P/B ratio is significant in predicting future stock returns. For instance, Fama and French observed that the P/B ratio (along with size) was the best predictor of future stock returns 18, Firms with low P/B ratios had consistently higher returns compared to the firms with high P/B ratios.

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