Market to book ratio is also known as the price to book ratio. This formula is a way of estimating if the market price of the stock is overpriced or underpriced. The market to book ratio compares the market value of the stock to the book value of the stock. An underpriced stock could mean the stock is selling for less than it should right now, or that there is something wrong with the company.
Determine the company's market value per share. This is the current selling price of the company's stock on the open market. For example, stock for Firm A is selling at $50 a share.
Determine the company's book value per share. The book value per share is the value of the company's stock on the company's stockholders' equity section. For example, Firm A's book value per share is $40.
Divide the market value per share by the book value per share to calculate market to book ratio. In our example, $50 divided by $40 equals 1.25.
Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.