But if the P/B ratio is less than 1, it suggests that the stock might be undervalued. Conversely, if the ratio is greater than 1, it indicates potential overvaluation. However, it's crucial to consider the industry and compare it with similar companies when interpreting the PB ratio.
Ideally, a P/B value under 1.0 is considered good, indicating a potentially undervalued stock. However, value investors often consider stocks with a P/B value under 3.0. The P/B ratio helps to identify low-priced stocks with high growth prospects.
What does an debt to equity ratio less than 1 mean? A debt-to-equity ratio less than 1 indicates that a company relies more on equity financing than debt. It suggests a relatively lower level of financial risk and is often considered a favorable financial position.
Below 1.0: A current ratio below 1.0 indicates a business has more current liabilities than current assets, suggesting potential liquidity problems. This might raise concerns about the business's ability to meet its short-term obligations, possibly leading to financial distress if the situation persists.
Low current ratio: A ratio lower than 1.0 can result in a business having trouble paying short-term obligations. As such, it may make the business look like a bigger risk for lenders and investors.
Generally, a good debt ratio for a business is around 1 to 1.5. However, the debt-to-equity ratio can vary significantly based on the business's growth stage and industry sector. For example, newer and expanding companies often utilise debt to drive growth.
A 0.5 D/E ratio is good in the sense that the company has more equity than debt financing. This suggests lower risk for creditors and investors. However, it might also indicate the company is missing out on potential growth opportunities that debt financing can provide.
Interpreting the Debt Ratio
If the ratio is over 1, a company has more debt than assets. If the ratio is below 1, the company has more assets than debt. Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low.
Lower Cost of Capital: Debt often has a lower cost of capital compared to equity, especially for a highly creditworthy company like Apple. By issuing debt, Apple can take advantage of this lower cost to finance projects, acquisitions, and other capital expenditures without diluting shareholder equity.
Conventionally, a PB ratio of below 1.0, is considered indicative of an undervalued stock. Some value investors and financial analysts also consider any value under 3.0 as a good PB ratio. However, the standard for “good PB value” varies across industries.
Bank stocks tend to trade at prices below their book value per share as the prices consider the increased risks from a bank's trading activities. The price-to-book (P/B) ratio can be used to compare a company's market cap to its book value.
A P/B ratio that's greater than one suggests that the stock price is trading at a premium to the company's book value. For example, if a company has a price-to-book value of three, it means that its stock is trading at three times its book value. As a result, the stock price could be overvalued relative to its assets.
A healthy blood pressure reading should be lower than 120/80 mmHg. Normal blood pressure is less than 120 mmHg systolic and 80 mmHg diastolic (see blood pressure chart below), and may vary from 90/60mmHg to 120/80mmHg in a healthy young woman.
As of today (2025-01-12), Apple's share price is $236.85. Apple's Book Value per Share for the quarter that ended in Sep. 2024 was $3.77. Hence, Apple's PB Ratio of today is 62.87.
P/B ratio as of January 2025 : 18.3
According to Tesla's latest financial reports the company has a price-to-book ratio of 13.3263. The price-to-book ratio is a way to measure how much the stock market thinks a company is worth compared to how much the company says its assets are worth on paper.
The 20/10 rule is a financial strategy to help you avoid dangerous levels of debt. Simply put, the 20/10 rule advises that you should avoid accumulating long-term debt that exceeds 20% of your annual income, and you should avoid debt payments of more than 10% of your monthly income.
Debt-to-Equity Ratio
A higher ratio indicates a greater reliance on debt and higher potential financial risk. A healthy debt-to-equity ratio varies across industries, but as a general rule of thumb, a ratio above 2:1 is considered excessive debt.
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
A high ratio is anything over 40% or 0.4. A low ratio is less than 36% (0.36) with a mortgage or 10% (0.1) without a mortgage. People often have questions about specific debt to equity ratios.
For instance, investors or other businesses interested in acquiring or merging with your company will want to see a debt ratio between 30 percent and 60 percent. If your debt ratio is higher than 60 percent, banks and other lenders may consider your company a risky borrower.
Typically, it's better to have a debt-equity ratio that's lower than 2.0 if possible. It's even more favourable to achieve a debt-equity ratio lower than 1.0. Generally speaking, the lower a company's debt-equity ratio is, the better its financial standing may be.
Acceptable Range. For most companies, an acceptable debt-to-equity ratio falls between 1.5 and 2. Larger companies can sometimes sustain a higher ratio. However, a ratio much above 2 can indicate that the company is taking on too much debt, which could be risky.
Google (GOOGL) Debt-to-Equity : 0.09 (As of Sep. 2024)
The bad debt ratio measures the amount of money a company has to write off as a bad debt expense compared to its net sales. In other words, it tells you what percentage of sales profit a company loses to unpaid invoices.