Price-to-Book ratio (P/B) is the ratio of a stocks market price per share to its book value per share. It tells you how much premium the market pays over the accounting net-worth.
Formula: P/B = Market Price per Share / (Shareholders Equity / Shares Outstanding). P/B = 1 means the stock trades at book value.
Example: HDFC Bank at Rs 1,500 with book value per share of Rs 600 has P/B = 2.5x. Indian banks historically trade between 1.5x-4x P/B depending on ROE.
When to use: Banks, NBFCs, insurance, and other balance-sheet-driven businesses where book value is the closest proxy for intrinsic value. Pair P/B with ROE — high ROE earns a high P/B.
When NOT to use: Asset-light businesses (IT services, FMCG, consumer brands) where intangible assets dominate intrinsic value but are missing from book.
Caveat: Past performance is not indicative of future returns. Book values can be inflated by goodwill or eroded by write-offs.
Related terms: P/E Ratio, EV/EBITDA, Book Value.