P/B Ratio (Price-to-Book)

The Price-to-Book (P/B) ratio is a valuation metric that compares a company's current market capitalisation to its book value — the net assets of the company as reported on the balance sheet (total assets minus total liabilities). It is calculated as: P/B Ratio = Market Price per Share ÷ Book Value per Share. A P/B ratio below 1.0 suggests the stock is trading below the accounting value of its net assets — potentially indicating undervaluation, though it may also reflect poor return on equity or asset quality concerns. A high P/B ratio indicates the market is pricing significant growth expectations or superior return generation above the book value of assets. In India, P/B is the preferred valuation metric for capital-intensive and financial sector companies — particularly banks, NBFCs, and insurance companies — where asset quality (loan book, investment portfolio) and capital adequacy are central to valuation. A bank trading at 3x P/B commands a premium justified by high ROE, strong asset quality, and franchise value.