Price-To-Book Ratio - P/B Ratio

See: Book Value.

The company had 3 primary assets on its balance sheet:

1) It had a factory for which it paid $100 million 3 years ago, depreciating $5 million a year, now held at book value of $85 million.

2) It had made acquisitions by the boatload, so it had $50 million in goodwill from those acqiusitions.

3) It had cash: $80 million.

So the easy book value calc? $215 million. With 100 million shares outstanding, it had book value of $2.15 a share. The price of the stock? $8. So it's about 3.5x book value, or thereabout.

What does that mean? It means that the money the company invested over time grew 350%-ish to today carry a market value of $8 a share. Was the assessment of book value fair? Accurate? Reflective of real values? Eh, maybe, maybe not. Book value in most companies doesn't really mean much. It's kind of a relic of old-timey accounting, when we had little else with which to value companies, and there wasn't...well, technology. The tech industry mangles book value where it truly means next to nothing. But some investors stil like to follow the ratio, and for some industries, like banks/banking, it kind of means something, even today. But that's about it.

Ok, we're closing the book on this one.