Price to book (P/B) ratio explained: Meaning, formula, ideal range, and real examples

What is Price to Book (P/B) Ratio?

The Price to Book (P/B) ratio compares a company’s current market price to its book value (net asset value). It helps investors understand how much they’re paying for each rupee of a company’s net assets.

Formula:
P/B Ratio = Market Price per Share ÷ Book Value per Share

Where:
Book Value per Share = (Total Assets – Total Liabilities) ÷ Total Number of Shares Outstanding

Why is the P/B ratio important?

• Asset-based valuation: Ideal for asset-heavy sectors like banks, NBFCs, and infrastructure companies.

• Identifying undervalued stocks: A low P/B ratio may suggest the stock is trading below its intrinsic value.

• Understanding risk: Very low P/B ratios sometimes signal poor business performance or distress.

What is a good P/B ratio?

P/B ratios vary widely by industry. Below are general benchmarks:

Note: For banks and finance, P/B is a key metric, while for IT companies, P/E and growth rates matter more.

Real-life examples (As of 2025 stock data):

(Note: Figures for example purposes only)

When is P/B ratio useful?

• Banking and financial sector analysis

• Comparing companies with high tangible assets

• Spotting deep value or turnaround opportunities

Limitations of P/B ratio

• Not ideal for asset-light businesses: IT, FMCG, and service-based companies may have high P/B but still be good investments.

• Can ignore intangible assets: Strong brand value or intellectual property doesn’t reflect in book value.

• Low P/B doesn’t always mean undervalued: It could signal financial trouble.

P/B ratio vs P/E ratio:

Final takeaway:

The P/B ratio is an excellent tool for evaluating asset-heavy companies, especially in the banking and infrastructure sectors. However, it should be used along with other financial metrics like ROE (Return on Equity) and P/E ratio for a more balanced analysis