Price-to-Book Ratio (P/B)
Definition
A valuation ratio comparing a company's market capitalisation to its book value. A P/B ratio significantly above 1.0 indicates that the market recognises substantial value beyond what is recorded on the balance sheet, typically reflecting intangible assets. The P/B ratio is particularly informative for intangible-rich companies, where a high ratio indicates that significant enterprise value is derived from assets — such as intellectual property, brand equity, and customer relationships — that are not fully captured on the balance sheet.
Complementary Terms
Concepts that frequently appear alongside Price-to-Book Ratio (P/B) in practice.
A valuation ratio comparing a company's share price to its earnings per share. The P/E ratio indicates how much investors are willing to pay for each pound of earnings and is influenced by growth expectations, risk profile, and the strength of intangible assets.
The ratio of a loan amount to the appraised value of the underlying collateral, expressed as a percentage. LTV is a primary risk metric used by lenders to assess the adequacy of collateral coverage — a lower LTV indicates greater equity cushion and lower credit risk.
A financial leverage ratio calculated by dividing total debt by total shareholders' equity, indicating the relative proportion of debt and equity financing in a company's capital structure. A higher ratio indicates greater financial leverage and potentially higher financial risk, while a lower ratio suggests more conservative financing.
The ratio of earnings before interest and taxes (EBIT) to interest expense, measuring a company's ability to meet its interest obligations from operating profits. A higher ratio indicates greater financial headroom and lower default risk.
A financial metric measuring the proportion of debt in a company's capital structure relative to its earnings, equity, or assets. The most common leverage ratios in corporate finance and lending include net debt to EBITDA, debt to equity, and debt to total assets.
A valuation ratio comparing a company's enterprise value to its EBITDA. EV/EBITDA is one of the most commonly used multiples for comparing valuations across companies, controlling for differences in capital structure, taxation, and depreciation policies.
A valuation ratio comparing a company's enterprise value to its annual revenue. EV/Revenue is often used to value high-growth or pre-profit companies where earnings-based multiples are not meaningful.
A reduction in the carrying amount of an asset when its recoverable amount falls below that carrying amount. Under IAS 36, goodwill, indefinite-life intangibles and intangibles not yet available for use are tested every year, other assets only when there is an indication of impairment; under FRS 102 all assets, including goodwill, are tested only on indication.
Related FAQ
How can an accountant help a client access IP finance?
An accountant readies the client for IP finance by proving clean title, commissioning an independent IP audit and valuation, and assembling the historical and forecast financials lenders need to underwrite the loan.
Read full answer →Is IP-backed lending cheaper than raising equity?
Usually yes on cost, because debt is non-dilutive — you keep your equity and pay interest rather than selling a permanent share of future value. But it must be serviced from cash flow.
Read full answer →Why does revenue attributable to IP matter to a lender?
Because a lender serves the loan from cash flow first and collateral only as a fallback, so IP that demonstrably earns revenue or royalties is far stronger security than a patent that generates nothing.
Read full answer →Put this knowledge to work
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