Abstract
First, let's define what the 'price to book', 'price to sales' and 'price to cash flow' are. The price to book ratio (P/B Ratio) is a financial ratio usually used to compare the stock's market value to its book value. Book value is the term used to designate the portion of the company held by shareholders. Book value is calculated with the company's total assets over its total liabilities. The Price to book ratio is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. It's also known as the 'Price equity ratio'. There are two ways to calculate the P/B Ratio. The first one is to divide the market capitalization by the company's total book value. The second one is to divide the company's current share price by the book value per share. Basically, to be clear, a low P/B ratio means that the stock is undervalued. But a low P/B ratio can also mean that something is wrong in the company. The P/B ratio also gives some idea of whether you are paying too much for what would be left in the company if gets bankrupted, in other words, if the investor is paying too much for what would be left in the company if it went bankrupt.
