P/B is most informative for businesses whose value is tied to physical, balance-sheet assets — banks, lenders, manufacturers with large plants, and utilities, among others.
- Banks and financial firms: loans and investments sit on the balance sheet, so book value is a meaningful anchor.
- Asset-heavy manufacturers: factories, machinery and inventory dominate the balance sheet.
- Utilities and infrastructure: large, long-lived assets.
For these businesses, comparing price with book value can show whether the market is valuing the net assets far above or below their accounting worth.
For others, P/B tells you much less. A software or consulting firm may create most of its value from people, brands and ideas — which are largely absent from book value. A high P/B there is not a warning by itself.
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.
Limitations to keep in mind
- Intangibles are often missing from book value.
- Asset values are historical and may be outdated.
- Write-downs can shrink book value suddenly.
- Buybacks shrink equity, which can raise P/B without any change in the underlying business.
As with every ratio, P/B is a question, not an answer. A low P/B can reflect a cheap asset base — or a business whose assets are quietly losing value. Always ask why.