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PBR (Price-to-Book Ratio): Understanding its Significance in Financial Analysis

PBR (Price-to-Book Ratio) is one of the commonly used financial indicators in the stock market, showing the relationship between a company’s intrinsic value and its market value. This article provides detailed explanations about the significance, calculation method, and usage of PBR.

1. What is PBR?
2. How is PBR calculated?
3. What are the uses of PBR?

What is PBR?

PBR indicates the ratio of a company’s stock price (market value) to its net asset value (book value). This helps investors understand the market’s evaluation of a company’s intrinsic value when purchasing its stocks. A higher PBR indicates that the market expects future growth and profitability from the company, while a lower PBR suggests market skepticism about the company’s future.

How is PBR calculated?

PBR is calculated by dividing a company’s stock price (market value) by its book value. Specifically, PBR = Stock Price ÷ Book Value. The stock price is the trading price of the stock in the market, and the book value is the total value of a company’s net assets after subtracting liabilities. Generally, if PBR is lower than 1, the company’s stock is considered undervalued compared to its intrinsic value.

What are the uses of PBR?

PBR is widely used by investors and analysts for company valuation and comparative analysis. Companies with low PBR are considered undervalued and may have future growth potential. On the other hand, companies with high PBR may indicate that the market highly values their future growth and profitability. However, it’s important to consider not only PBR but also other financial indicators and the industry’s conditions comprehensively.

PBR is an important financial indicator that demonstrates the relationship between a company’s intrinsic value and market value. It serves as a valuable source of information for investors and analysts in company valuation and comparative analysis.