I wanted to visit the price/book value ratio that is commonly used to value stocks. The price/book ratio is the ratio of market price of a company's shares over its book value of equity. Book value is an accounting term which describes the part of the company held by shareholders. Book value is found by taking total assets and subtracting total liabilities. 
To calculate the price to book ratio we take the current price of the stock, and divide by the book value per share. Price to book= Stock price/ Book Value per of the company. I will now visit why this ratio is useful to investors, and explain exactly who can benefit most from using this ratio.
The price/book value ratio is very helpful because it does a good job of finding stocks that the market has neglected, therefore causing value. The price/book value is a far better ratio to use on mature and slow growing companies than it is on fast growing businesses. Many technology companies such as Microsoft and Oracle look very overvalued on the price/book basis because the ratio doesn't account for things such as brand name, intangible assets, and patents.
The price/book value ratio is a great tool to use when trying to find companies with a large amount of assets who have gone under wall street's radar and could be a good value play. Because of its shortcomings, one should never put too much faith into the ratio for fast growing companies, but this ratio is a great one to use in conjuction with some of the other valuation ratios.
GrowYourFunds previously also studied the price/sales ratio and how to use it in valuing a company.
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