MarketLearn
Chapter 20Intermediate~9 min

Price versus book value

Book value per share, and what P/B compares.

Book value is the accounting value of what a company's shareholders own. It is calculated as total assets minus total liabilities — the same figure as shareholders' equity on the balance sheet.

Book value per share = Shareholders' equity ÷ Number of shares

Book value per share divides that equity among the shares. It represents the accounting net worth sitting behind each share.

The price-to-book ratio, or P/B, compares the market price with that book value.

P/B = Share price ÷ Book value per share

Example: ABC Manufacturing has shareholders' equity of ₹400 crore and 40 crore shares, so book value per share is ₹10. If the share trades at ₹30, its P/B is 3 — the market values the company at three times its accounting net worth.

Price-to-Book (P/B) Ratio

Compares the market price with the accounting net worth per share.

P/B = Share Price ÷ Book Value Per Share

Book Value Per Share

₹100.00

P/B Ratio

5x

Book value is an accounting figure — it reflects historical costs, not what the business could fetch today. Asset-light businesses (like software or services) often trade well above book value because their main assets never appear on the balance sheet. P/B tends to be more informative for asset-heavy businesses such as banks.

What book value is and is not

Book value is based on accounting records, largely at historical cost. It does not reflect what assets would fetch if sold today, nor the value of brands or know-how.

Key takeaways

  • Book value per share = shareholders' equity ÷ number of shares.
  • P/B = share price ÷ book value per share.
  • Book value is an accounting measure, largely at historical cost.
  • P/B compares the market's price with that accounting net worth.

Check your understanding

Every answer comes with an explanation — the goal is understanding, not a score.

Question 1 / 30%

Nova Industries has shareholders' equity of ₹500 crore and 25 crore shares. Its book value per share is:

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