Market price per share divided by book value per share — compares the market's valuation to the accounting value of a company's net assets.
Deeper Explanation
Graham placed great weight on P/B for asset-heavy businesses (banks, industrials, utilities) where book value closely reflects economic value. A P/B below 1.0 means the market values the business below its net assets — a classic Graham cheapness signal. For asset-light businesses (software, services), P/B is less useful because their value lies in intangibles not captured in accounting book value. Modern value investors use P/B selectively, typically in financial and industrial sectors, and cross-check with P/E, EV/EBITDA, and free cash flow yield.
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