Microsoft Price-to-Book

For informational and educational purposes only • Not investment advice.

Microsoft

Software, cloud, AI, enterprise tools

Estimated Fair Value

$642.97

Stock price: $535.07

Fair value above stock price

This model estimates a company's fair value by applying its historical Price-to-Book valuation multiple to its Book Value Per Share.

Historical P/B Ratios

This chart shows the company's historical Price-to-Book ratio by year.

Key Valuation Metrics

Selected P/B Multiple

Notes

• The Price-to-Book (P/B) range is wide, meaning the valuation is sensitive to which historical multiple is used.

What is Price-to-Book (P/B) Valuation?

Price-to-Book (P/B) Valuation estimates a company's Fair Value based on its Book Value and the P/B multiple applied to that Book Value.

The P/B ratio compares a company's share price with its Book Value per Share. It shows how the market values the company relative to the net assets recorded on its balance sheet.

Historical P/B ratios show the valuation multiples at which the company has traded in the past. They can be used as a reference for estimating Fair Value from the company's current Book Value per Share.

P/B Valuation is most useful for companies where Book Value is economically meaningful, such as banks, insurers and asset-heavy businesses.

How the P/B Model Works

The Price-to-Book model estimates fair value by calculating the company's historical P/B multiples, selecting a valuation P/B, and applying it to Book Value per Share.

Historical Book Value & Prices

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Calculate Historical P/B

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Select Valuation P/B

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Apply to Book Value per Share

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Fair Value per Share

P/B Formula

\text{P/B Ratio} = \frac{ \text{Share Price} }{ \text{Book Value per Share} }

Key Model Assumptions

• The company must have positive Book Value per Share.
• Historical P/B ratios are calculated only for years with valid positive Book Value per Share.
• The 10 most recent valid historical P/B ratios are used to estimate the company's typical valuation multiple.
• The historical median P/B forms the Base valuation assumption.
• Conservative and optimistic scenarios adjust the historical median P/B.
• Historical P/B multiples may not remain representative if the company's asset base, profitability or business model changes materially.

Step 1 — Calculate Historical P/B Ratios

Historical Book Value per Share = Historical Book Value / Historical Shares Outstanding

Historical P/B = Year-End Share Price / Historical Book Value per Share

Historical Median P/B = Median of the 10 most recent valid historical P/B ratios
Historical Median P/B = 10.80x

The model calculates historical Book Value per Share and historical P/B ratios. The median of the 10 most recent valid P/B ratios is then used as Microsoft's historical valuation benchmark. The resulting median P/B is 10.80x.

Step 2 — Select the Valuation Multiple

Selected P/B = Historical Median P/B × Scenario Adjustment (Base)

Selected P/B = 10.80x × 100% = 10.80x

The selected scenario adjusts the historical median P/B to determine the valuation multiple used to estimate Fair Value. Under the base scenario, the model uses a P/B multiple of 10.80x.

Step 3 — Estimate Fair Value per Share

Fair Value per Share = Book Value per Share × Selected P/B

Fair Value per Share = $59.55 × 10.80x = $642.97

The selected P/B multiple is applied to Microsoft's current Book Value per Share of $59.55 to estimate a Fair Value per Share of $642.97.

Step 4 — Compare With the Current Market Valuation

Current P/B = Current Price / Book Value per Share

Current P/B = $535.07 / $59.55 = 8.98x

Valuation Gap = Fair Value per Share / Current Price − 1

Valuation Gap = $642.97 / $535.07 − 1 = 20.2%

Current P/B shows the multiple currently assigned to Microsoft's Book Value. The stock currently trades at 8.98x compared with a historical median of 10.80x.

The Valuation Gap compares the estimated Fair Value with the current stock price of $535.07. Under the current assumptions, the Valuation Gap is 20.2%.