6.3What is the P/B ratio?
The Price-to-Book (P/B) ratio compares the share price with the company’s book value per share (its net worth on paper).
It shows how much the market pays over the accounting net worth. It is especially useful for banks and financial companies, whose assets are mostly money.
The market values strong profitability or intangibles (brands, technology).
Possible value opportunity, or the market doubts the asset quality (e.g. a bank with bad loans).
Lower is cheaper, but high-ROE companies deserve higher P/B. Compare P/B together with ROE.
- Price = ₹1,800; book value per share = ₹600.
- P/B = 1,800 ÷ 600 = 3.
- Less useful for asset-light companies (IT, FMCG) whose value is in people and brands.
- Book values can be distorted by write-offs.
Always compare a ratio with (1) the company’s own history and (2) other companies in the same industry. A single number on its own means little.
- P/B = price ÷ book value per share.
- Key metric for banks.
- Read with ROE.
Q1. Price ₹300, BVPS ₹150. P/B?Show answer
2.
Q2. P/B below 1 means?Show answer
The market values the company below its book net worth.
Q3. For which sector is P/B most useful?Show answer
Banking and finance.