What is Price-to-Book Ratio (P/B)?
The price-to-book ratio (P/B) is a valuation multiple comparing a company’s market share price to its book value per share, indicating how much investors are willing to pay for each riyal of net assets.
How It Works
- Formula: P/B = market share price / book value per share.
- Book value per share = (total equity – preferred equity) / shares outstanding.
- P/B > 1 means the market values the company above its accounting net worth.
- Best for asset-heavy sectors (banks, insurance, real estate).
Saudi Context
On Tadawul, Saudi banks (SNB, Al Rajhi, Riyad) typically trade at P/B of 1.5x to 3.0x, real estate companies at 0.8x to 1.5x, and petrochemicals at 1.0x to 2.5x. The P/B ratio is widely used by Saudi institutional investors and the PIF for comparative valuation across the Tadawul-listed banking sector.
Example
A Tadawul-listed bank trades at SAR 45 per share with a book value per share of SAR 30. P/B = 45 / 30 = 1.5x, meaning investors pay SAR 1.50 for every SAR 1 of net assets.