The P/B ratio, or price-to-book ratio, compares a company's share price with its book value per share, which is the net worth on its balance sheet divided by the number of shares. A stock at Rs 1,000 with a book value of Rs 400 a share has a P/B of 2.5. A low P/B can mean the stock is cheap or that the business earns little on its assets. It is most useful for banks and other asset-heavy companies. The Nifty 50 traded at a P/B of about 2.75 in October 2026.
The P/B ratio asks a simple question: how much is the market paying for each rupee of net assets the company owns? Book value is what is left after all liabilities are subtracted from all assets. It is the accounting value of the shareholders' equity. If the market price is far above it, investors expect the company to earn much more on those assets than an ordinary business would. If the price is below book value, the market either expects losses or has overlooked the stock.
The formula
P/B ratio equals market price per share divided by book value per share. Book value per share is total shareholders' equity divided by the number of shares outstanding. Both figures are in the annual report. Shareholders' equity is on the balance sheet, and the share count is in the notes. Some analysts use tangible book value, which strips out goodwill and other intangible assets, for a stricter test.
A worked example
A company has shareholders' equity of Rs 4,000 crore and 10 crore shares. Book value per share is Rs 400. The share trades at Rs 1,000. The P/B ratio is 1,000 divided by 400, which is 2.5. Investors are paying Rs 2.50 for every rupee of net assets. Whether that is expensive depends on what the company earns on those assets. If its return on equity is 25%, a P/B of 2.5 is reasonable. If the return on equity is 6%, the same P/B is hard to justify.
Where P/B works best
The ratio is most useful where book value is a fair measure of what the company owns. Banks and NBFCs are the classic case. Their assets are loans and securities carried close to market value, so book value is meaningful and P/B is the standard way to compare them. Well-run Indian private banks have traded at 2 to 4 times book. Public sector banks have often traded below 1, reflecting doubts about the quality of their loan books. The ratio also suits insurers, real estate companies and capital-intensive manufacturers.
Where it fails
P/B says little about companies whose value is not on the balance sheet. A software company's assets are its people and its code, neither of which is recorded at anything like its worth. Consumer brands carry their most valuable asset, the brand, at close to zero. Such companies trade at P/B ratios of 10, 20 or more and can still be fairly priced. For them the P/E ratio and cash flow measures do the job. Book value can also be distorted by old assets carried at historical cost, by buybacks that shrink equity, and by write-offs that have not yet happened.
P/B and the market
The Nifty 50 traded at a P/B of about 2.75 in early October 2026, well below its long-run average, after the index fell from its 2025 highs. Index-level P/B is a rough gauge of whether the market as a whole is cheap or dear. Readings near 2 have marked bear market lows in India, and readings above 4 have marked tops. It is a slow signal, useful for allocation decisions rather than trades. The step-by-step calculation and sector norms are covered in how to calculate the price-to-book ratio, and the broader toolkit in how to use the P/E ratio for stock selection.
FAQs
What is a good P/B ratio?
Below 1 is cheap on paper, 1 to 3 is typical for most industries, and above 3 needs a high return on equity to justify it. Compare within the sector.
Can P/B be negative?
Yes, when liabilities exceed assets and book value is below zero. The ratio is then meaningless and the company is usually in trouble.
Is P/B better than P/E?
Neither is better. P/B suits asset-heavy businesses and loss-making years when P/E cannot be calculated. P/E suits profitable, asset-light ones.
What is the Nifty 50 P/B ratio?
About 2.75 as of October 2026. NSE publishes the daily figure on its website.