Price-to-Book (PB) Ratio
5paisa Research Team
Last Updated: 26 Feb, 2025 10:45 PM IST

Content
- What Is the Price-to-Book (P/B) Ratio?
- How is Price to Book Value Ratio Calculated?
- Importance of price-to-book ratio in share market analysis
- P/B Ratios and Public Companies
- P/B Ratio vis-á-vis Return on Equity
- Interpretation of P/B Value Ratio
- Advantages of using PB ratio
- Limitations of Using the P/B Ratio
- Example of How to Use the P/B Ratio
When it comes to finance and investing, there's a bunch of rations and matrics. These metrics help us determine whether a company's stock—is worth investing in or not. Among these metrics is the Price-to-Book ratio. It is a NIFTY tool that gives us valuable insights into how a company's market value is reactive to its book value. This value holds immense potential for investors seeking to make smart decisions regarding their investment portfolios.
This article explores PB ratio meaning, its formula, and how to calculate it. Moreover, it will provide a practical example to help it all make sense. So, Let's drive in!
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Frequently Asked Questions
A P/B ratio of less than 1 indicates that the stock is trading below its book value, suggesting the market values the company at less than its net assets. This can signal an undervalued stock, potentially offering a buying opportunity for value investors.
A good P/B ratio typically ranges between 1 to 3, depending on the industry. A ratio around 1 indicates the stock is fairly valued, while below 1 may suggest undervaluation. Ratios above 3 could indicate overvaluation or high growth expectations. Context and industry standards are crucial when interpreting the P/B ratio.
A PE ratio of 15 is generally considered reasonable, indicating fair value for many companies. It suggests balanced expectations of growth and profitability. However, whether it’s “good” depends on the industry, company growth prospects, and market conditions. Comparing it to sector averages offers better insight.