Definition
Price-to-Book (P/B) Ratio
The P/B ratio compares a company's market price to its book value (net assets) per share, showing how much investors pay for each rupee of net worth.
P/B = Market Price / Book Value per Share. A P/B below 1 may mean the stock trades below the accounting value of its assets (potentially undervalued, or signalling trouble); a high P/B reflects strong growth expectations or intangible value.
P/B is most useful for asset-heavy and financial businesses, where book value is meaningful, banks and NBFCs are often valued on P/B rather than P/E. It is less relevant for asset-light firms (IT, FMCG) whose value lies in brands and intellectual property not on the balance sheet.
Related terms
- EV/EBITDAEV/EBITDA compares a company's enterprise value to its earnings before interest, tax, depreciation, and amortisation, a capital-structure-neutral valuation measure.
- Intrinsic ValueIntrinsic value is the estimated true worth of a business based on its fundamentals and future cash flows, independent of the current market price.
- Return on Equity (ROE)ROE measures how much net profit a company earns for each rupee of shareholders' equity, showing how efficiently it puts owners' money to work.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.