P/B Ratio
The price-to-book ratio compares a share's market price with its book value per share.
Start the lessonIntroduction
Market price compared with book value
The price-to-book ratio, or P/B ratio, compares a company's market price per share with its book value per share. Book value is based on the company's assets minus liabilities, with the relevant amount attributable to ordinary shareholders.
The short answer
P/B shows how the market price relates to accounting net assets per share. It is a comparison tool, not a guarantee that a share is cheap or expensive.
The formula
Divide share price by book value per share
P/B Ratio = Share Price ÷ Book Value per Share
Book value per share is generally calculated using net assets attributable to ordinary shareholders and the relevant share count. The exact presentation may vary with accounting definitions and company circumstances.
₹200 example
Calculate an illustrative P/B
If the share price is ₹200 and book value per share is ₹100, the P/B ratio is 2 times.
Illustrative P/B ratio
2 times
₹200 share price ÷ ₹100 book value per share
This is an illustrative calculation, not live market data or an assessment of any particular company.
How to interpret it
Book value needs business context
- A P/B above 1 means the market price is above book value per share; it does not automatically mean the share is overpriced.
- A P/B below 1 does not automatically mean a bargain; markets may reflect asset quality, risks, or weak expected returns.
- P/B is often more informative for businesses where balance-sheet assets are central, but it may be less useful for asset-light companies.
- Intangible assets, write-downs, accounting methods, and business models can affect how useful book value is.
- Compare firms in similar industries and review profitability, debt, cash flow, and asset quality.
- If book value per share is zero or negative, the conventional P/B ratio is generally not meaningful in the usual way.
Key points
What to remember
- P/B = share price ÷ book value per share.
- Book value is based on net assets attributable to shareholders.
- A P/B above or below 1 is not, by itself, a buy or sell signal.
- Asset quality and accounting choices affect book value.
- P/B may be less useful for companies whose value relies heavily on intangible assets.
- Use P/B with profitability, debt, cash flow, and industry context.
This lesson is for education only, not personalized financial, tax, or investment advice. Investments in securities are subject to market risks.
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