understanding financial jargon
Price To Book Ratio (PBR)
The Price to Book Ratio is one way of deciding whether a share in a company is cheap or expensive. It compares the share price of a company with the firms book value of assets expressed on a per share basis. For example, if a company has 10 million shares in issue and £20 million of assets then the net asset value (NAV) per share is £2. If the share price is £3 then the PBR = 1.5
To interpret the result, a result of PBR less than one implies that you can by the company assets for less than they are worth, while a PBR greater than one implies that you would have to pay more for the company assets than they are worth. This measure is only really useful in asset intensive industries such as utilities where companies have a lot of hard assets, rather than in industries like media companies where the assets are mainly goodwill.
It is also worth noting that valuations can be out of date even for companies with apparently safe assets. For example, a US bank valuing it's mortgage loan book at the beginning of 2007 would have been worth somewhat less by the end of that year. Also like any other valuation measure it should not be used in isolation and there should be supporting evidence for the cheapness of a share.
What to do if you need more help
If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.
We hope you found this information useful.
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