Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms.
P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders.
In such cases, P/B should also be calculated on a "diluted" basis, because stock options may well vest on sale of the company or change of control or firing of management.
In these types of companies, factors such as copyrights, intellectual capital, internally generated goodwill, or brand awareness are much more valuable than the tangible assets listed on their balance sheets.
[4][5][6][7][8] Eugene Fama and Kenneth French incorporated a price-book term in their influential three factor model.
Penman Richardson and Tuna (2013) show how the price-to-book ratio can be decomposed into financing and operating components.