The PB ratio compares a company’s share price with the book value of its equity per share, so it shows how much the market pays for each rupee of net assets. A ratio of 1.5 means the stock trades at one and a half times its book value. This guide covers the formula, how to read the number, a worked example and the limits you should know.
Key Takeaways
- PB ratio = market price per share divided by book value per share.
- Book value is total equity on the balance sheet, so it is an accounting number, not a market value.
- There is no single good level. Compare it with the company’s own history, its peers and its return on equity.
- The ratio works best for asset-heavy businesses such as banks, and misleads for asset-light firms.
- PB ratio equals PE ratio multiplied by return on equity, which links all three numbers.
In this article
- What is the PB ratio?
- PB ratio formula and how to calculate it
- How to read the ratio
- Worked example with numbers
- When it works and when it misleads
- Where to check book value
- Pros and cons
- Checklist and common mistakes
- Frequently asked questions
- The bottom line
What Is the PB Ratio?
PB ratio stands for price to book ratio. You will also see it written as P/B or price to book value (P/BV). It divides the market price of one share by the book value of one share. Book value is what remains for shareholders when all liabilities are subtracted from all assets on the balance sheet.
Think of a company as a box of assets: plants, cash, stock and money owed by customers. Subtract what the company owes to lenders and suppliers. What is left belongs to shareholders. If that figure is ₹500 crore and the market values the whole company at ₹750 crore, investors are paying ₹1.50 for every ₹1 of book value. That 1.50 is the PB ratio.
Index providers use the same idea. The Nifty 50 factsheet on the NSE Indices website lists P/E, P/B and dividend yield under a Fundamentals heading, so you can see the figure for the whole index, not only for single stocks.
Where the inputs come from
Both inputs are public. The share price comes from the exchange. Book value comes from the balance sheet in the quarterly results or the annual report: equity share capital plus reserves and surplus gives total equity. The number of shares comes from the share capital note or the shareholding pattern. Large groups report both standalone and consolidated figures, so use the same basis for equity and for the share count. Next, the formula itself.
PB Ratio Formula and How to Calculate It
The PB ratio formula has one main form and one shortcut:
- Per share: PB ratio = market price per share ÷ book value per share (BVPS).
- Whole company: PB ratio = market capitalisation ÷ total equity.
Both give the same answer, because market capitalisation is price times the number of shares and total equity is book value per share times the same number of shares. The shares cancel out.
Two ways to calculate the PB ratio
Use the per-share method when you have a quote screen open, and the whole-company method when you are reading the results filing. If the two answers differ, the share count or the equity figure is mismatched. Check that before trusting either.
Finding book value per share for the PB ratio
- Open the latest balance sheet and note total equity attributable to the owners of the company.
- If the company has preference shares, subtract their value, because they rank ahead of equity shareholders.
- Find the number of equity shares outstanding.
- Divide equity by the number of shares to get BVPS.
- Divide the current market price by BVPS.
How to Read the Ratio Against Peers and ROE
A ratio below 1 means the market price is below the accounting value of equity. A ratio above 1 means investors pay more than book value. Neither is good or bad by itself. The number only becomes useful when you ask why it sits where it does.
Below 1. The market may doubt that the assets can earn a return, or that they are worth their stated value. It can also mean the stock is cheap. You have to check earnings and asset quality to tell the two apart.
Around 1 to 3. Many established businesses sit here, though the normal range differs by sector. Compare with peers, not with the whole market.
High numbers. A company that earns a high return on equity, or whose value sits in brands and software that the balance sheet does not record, will usually trade at a high multiple. The high figure may be fair, so ask what return the equity earns. That link is shown in the worked example below.
Reading price to book against return on equity
A fair multiple rises with return on equity (ROE). A business that turns each ₹100 of equity into ₹25 of annual profit deserves a higher multiple of book value than one that earns ₹8. So never judge the ratio alone. Place it next to ROE, debt and growth. Our guide to how FII flows affect the stock market shows why price, the top half of the ratio, can move even when the business has not changed.
PB Ratio Worked Example With Numbers
Suppose a company, Alpha Industries Ltd, reports the following. Every figure here is hypothetical and used only to teach the method.
Step-by-step PB ratio calculation
- Equity share capital is ₹50 crore and face value is ₹10 per share, so shares outstanding = 50 ÷ 10 = 5 crore shares.
- Reserves and surplus are ₹450 crore, so total equity = 50 + 450 = ₹500 crore.
- Book value per share = 500 ÷ 5 = ₹100.
- The stock trades at ₹150, so PB ratio = 150 ÷ 100 = 1.5.
- Cross-check: market capitalisation = 150 × 5 = ₹750 crore, and 750 ÷ 500 = 1.5. Both methods match.
| Share price | Book value per share | PB ratio | What it says |
|---|---|---|---|
| ₹80 | ₹100 | 0.8 | Market price below book value |
| ₹150 | ₹100 | 1.5 | Market pays a 50% premium to book value |
| ₹400 | ₹100 | 4.0 | Market expects strong returns on equity |
How price to book links to PE and ROE
Now suppose Alpha earns a 10% return on equity. Net profit = 10% of ₹500 crore = ₹50 crore. Earnings per share (EPS) = 50 ÷ 5 = ₹10. The PE ratio = 150 ÷ 10 = 15. Check the identity: PB ratio = PE ratio × ROE = 15 × 0.10 = 1.5. It matches the result above, which confirms the three numbers describe the same company.
What happens when book value changes
Say Alpha books a one-time loss of ₹100 crore. Equity falls to ₹400 crore and BVPS to 400 ÷ 5 = ₹80. At the same ₹150 price, the ratio rises to 150 ÷ 80 = 1.875, which is about 1.88. The stock did not change, yet the ratio did. Or say ₹50 crore of Alpha’s equity is goodwill and other intangibles. Tangible book value per share = (500 − 50) ÷ 5 = ₹90, and the price to tangible book ratio = 150 ÷ 90 = about 1.67.
When It Works and When It Misleads
Book value is a record of what was spent and earned in the past. It says little about what a business can earn in the future. That makes the ratio more useful for some companies than for others.
Banks and financial stocks: where the PB ratio is popular
A bank’s assets are mostly loans and securities, and its liabilities are mostly deposits and borrowings. These are financial items, so equity is a fairly meaningful measure of the capital behind the business. That is why analysts quote it so often for banks and lenders. Still, book value is only as good as loan quality. Check gross and net NPA figures in the bank’s results and the data on the Reserve Bank of India website. Financials were among the sectors that led the FPI exit in 2026, as our study of sectors hit by FII selling shows, so price swings in this group can move the ratio quickly.
Asset-light companies and price to book
Software firms, consumer brands and service companies keep their main assets, such as people, brands and customer trust, off the balance sheet. Their book value looks tiny next to their market value, so the ratio runs high and tells you little. Use PE, free cash flow and ROE for these companies instead.
Other cases need care too. Old land and buildings may sit at historic cost, far below today’s value. Large buybacks and write-offs shrink book value fast. A company with negative equity has a negative book value, and the ratio then has no useful meaning.
Where to Check Book Value Data
Use official filings for the inputs and treat any website’s ready-made ratio as a starting point. Different screeners may use standalone or consolidated equity and may count preference capital differently, so two sites can show two different figures for the same stock. Page layouts also change, so check the official site for the current location of each item.
| Source | What you can get | Note |
|---|---|---|
| Company results filing on NSE or BSE | Total equity, share capital, reserves | Use the latest quarter or annual balance sheet |
| Annual report | Detailed equity note, intangibles, preference capital | Needed for tangible book value |
| NSE Indices factsheets | P/E, P/B and dividend yield for an index | Index-level, not single-stock |
| Exchange quote page | Current market price | Price is the only live-moving input |
One more link to the wider market: heavy institutional selling lowers the price, which lowers the ratio even when book value is unchanged. Watch the latest FII DII data today, the monthly FII and DII figures and the full FII DII F&O data page to see whether flows might be moving prices.
Pros and Cons of PB Ratio
| Pros | Cons |
|---|---|
| Uses balance sheet numbers, which are stable and audited. | Ignores future earnings and growth. |
| Works when a company has losses and PE cannot be used. | Misleads for asset-light businesses with large unrecorded value. |
| Very useful for banks and other asset-heavy companies. | Old assets at historic cost can understate true value. |
| Easy to calculate and to compare across peers. | Buybacks and write-offs distort book value. |
| Helps spot stocks trading below accounting value for a closer look. | Accounting choices differ, which weakens comparison across firms. |
PB Ratio Checklist and Common Mistakes
- Confirm the business type. Is it asset-heavy or asset-light?
- Calculate the ratio from the latest filing using equity and share count on the same basis.
- Compare with the company’s own price to book history and with listed peers.
- Check ROE. A higher ROE can support a higher multiple.
- Look at debt, asset quality and one-time items that changed book value.
- Read the annual report notes before relying on any number.
Common mistakes to avoid
Treating a low ratio as proof of a bargain. A stock can be cheap against book value because the book value itself is overstated. Comparing across sectors. A bank and a software firm have very different balance sheets, so their ratios cannot be set side by side. Mixing bases. Using consolidated equity with a standalone share count gives a wrong answer. Ignoring tangible book value when goodwill is large.
Frequently Asked Questions
What is the PB ratio in simple words?
The PB ratio compares a stock’s market price with its book value per share. A ratio of 2 means you pay ₹2 for every ₹1 of net assets on the balance sheet.
How do you calculate the PB ratio of a stock?
Divide the current market price by book value per share. Book value per share is total equity divided by the number of equity shares outstanding. You can also divide market capitalisation by total equity.
Is a low price to book value good?
Not always. A low ratio can mean the stock is cheap, or it can mean the market doubts the assets or the earnings. Check return on equity, debt and asset quality before drawing a conclusion.
Can book value be negative?
Yes, when a company’s liabilities exceed its assets, equity and book value become negative. The ratio is then not meaningful and should not be used.
What is the difference between the PB ratio and the PE ratio?
The PE ratio compares price with earnings per share, while the PB ratio compares price with book value per share. They are linked: PB ratio equals PE ratio multiplied by return on equity.
The Bottom Line
The PB ratio is a simple way to see how the market prices a company against the net assets on its balance sheet. It is most useful for banks and other asset-heavy firms, and least useful for businesses whose value sits in brands, software or people. Always read it next to return on equity, debt and the company’s own history.
Our practical next step: pick one company you follow, pull its latest equity and share count from the exchange filing, and calculate its PB ratio by hand the way the worked example does. Then check the latest FII and DII data to see how institutional flows are treating the sector, and browse more explainers in our blog category.
Sources: NSE Indices, Nifty 50 factsheet; National Stock Exchange of India; BSE; Reserve Bank of India. Worked examples use hypothetical numbers checked by calculation.
Disclaimer: This article is for educational purposes only and is not investment advice. Please consult a SEBI-registered advisor before making investment decisions.
