P/B Ratio

Detailed explanation

Book value is assets minus liabilities. P/B tells you what multiple of that net worth the market is paying. It is most useful for banks and financials, where assets are largely financial and marked close to fair value, and least useful for asset-light software or brand-driven businesses.

Formula

P/B = Share price / Book value per share

Example

A bank at ₹300 with a book value of ₹150 per share trades at a P/B of 2.

Why it matters

For lenders, P/B read together with return on equity is a better valuation frame than P/E alone.

Key points

• Below 1 can signal distress rather than a bargain.
• Ignores intangible assets such as brand and IP.
• Pair it with ROE: a high ROE justifies a higher P/B.

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