Price-to-Book Ratio: Meaning and Formula What is book value of equity? The book value of equity is the portion of a company's assets that are owned by shareholders. This figure is calculated by subtracting the company's liabilities from its total assets. The book value of equity can be used to measure the financial health of a company, as well as its potential value to shareholders.

How do you calculate book value and market value? Book value is calculated by subtracting the total liabilities from the total assets of a company. This will give you the book value of the company. To calculate the market value, you will need to take the book value and add or subtract the market value of the assets and liabilities.

How is book ratio calculated? The book ratio is calculated by dividing the book value of a company's assets by the book value of its liabilities. The book value of assets is the accounting value of a company's assets, which is the original cost of the assets minus any depreciation that has been incurred. The book value of liabilities is the accounting value of a company's liabilities, which is the original amount of the liabilities minus any payments that have been made. Why do banks price to book value? Banks use the book value of their assets as the starting point for pricing because it is the most accurate reflection of the true value of the bank's holdings. By contrast, the market value of assets can be affected by a number of factors that have nothing to do with the underlying value of the asset, such as market speculation or the general level of interest rates.

The book value of assets is also a better predictor of future cash flows than the market value, since it is based on the historical cost of the assets rather than current market conditions. This is especially important for banks, since their business model is based on borrowing money at one interest rate and lending it out at a higher rate.

In summary, banks price their assets at book value because it is the most accurate reflection of the true value of the bank's holdings, and it is a better predictor of future cash flows than the market value.

### How do you calculate the PB ratio of a portfolio?

PB Ratio = Price of Portfolio / Book Value of Portfolio

The price of the portfolio is the current market value of all the securities in the portfolio. The book value of the portfolio is the original value of all the securities in the portfolio, plus any income that has been reinvested, minus any losses.