The price-to-book ratio is worked out in three steps: find shareholders' equity on the balance sheet, divide by the number of shares to get book value per share, then divide the share price by that. A share at Rs 1,000 with book value of Rs 400 has a P/B of 2.5. The number only means something next to the company's return on equity and its sector. Banks are judged on it. Software and consumer companies are not.
This page walks through how to calculate and use the price-to-book ratio from an Indian annual report. The concept, what the ratio measures and where it applies, is covered in P/B ratio. Here the focus is the mechanics and the reading.
Step 1: find book value
Open the balance sheet. Under the heading Equity, Indian companies report equity share capital and other equity, which holds reserves and surplus. Add the two. That total is shareholders' equity, also called net worth or book value. For a group, use the consolidated balance sheet and the figure attributable to owners of the parent, leaving out minority interests. If the company has preference shares, subtract their value too, since the ratio is about what equity holders own.
Step 2: book value per share
Divide shareholders' equity by the number of equity shares outstanding. The share count is in the notes to the accounts or on the exchange website. Watch for a recent bonus issue or split, which changes the count without changing the total. Suppose equity is Rs 4,000 crore and there are 10 crore shares. Book value per share is Rs 400.
Step 3: divide the price
Take the current share price and divide by book value per share. At Rs 1,000, the ratio is 1,000 divided by 400, which is 2.5. Most financial websites show this figure, but the figure is only as good as the book value they used, which is often a year old. Doing it by hand from the latest quarterly balance sheet gives a fresher number.
Step 4: compare with return on equity
A P/B ratio on its own says little. The pair it belongs with is return on equity, which is net profit divided by shareholders' equity. A business that earns 20% on its book value deserves a higher P/B than one earning 8%. The rough rule is that P/B divided by return on equity should be in the same range across comparable companies. A company at 2.5 times book earning 25% on equity is cheaper than one at 1.5 times book earning 6%. The second looks like a bargain and is usually a trap.
Step 5: compare within the sector
Sector norms differ widely. As a guide from Indian markets over the past decade, large private banks have traded at 2 to 4 times book, public sector banks at 0.5 to 1.5, NBFCs at 1.5 to 5 depending on growth, and cement and steel makers at 1 to 3. IT services, consumer goods and pharma companies routinely trade at 8 to 30 times book, because their earnings come from brands and people rather than recorded assets. A P/B of 5 is high for a bank and low for a consumer company. The P/E ratio is the better first tool for the asset-light group.
Reading the result
A P/B below 1 means the market values the company at less than its net assets. Sometimes that is a genuine bargain, often in a sector out of favour. More often it means the book value is not real: loans that will not be repaid, inventory that will not sell, or assets no one would buy at the carrying value. A P/B far above the sector range means the market expects exceptional returns on capital, which it may or may not get. For the market as a whole, the Nifty 50's P/B of around 2.75 in October 2026 sat below its long-term average, which value-minded investors read as a reasonable entry level. The idea of buying below a conservative estimate of worth, with a margin of safety, is developed in intrinsic value, and the use of P/B alongside P/E in picking stocks is covered in how to use the P/E ratio.
FAQs
Should goodwill be removed from book value?
For a stricter test, yes. Tangible book value excludes goodwill and intangibles and gives a lower, harder number. It matters most for companies that have made big acquisitions.
Which balance sheet should be used, standalone or consolidated?
Consolidated, for a company with subsidiaries. It reflects everything the shareholders own.
How often does book value change?
Every quarter, as profits are added and dividends paid out, but the full audited figure comes once a year in the annual report.
Is a falling P/B a buy signal?
Not by itself. The price may be falling for a good reason. Check whether return on equity and asset quality are holding up first.