Learn · Valuation
What is book value and the price-to-book (P/B) ratio
Book value is a company's net worth on its balance sheet, assets minus liabilities. The price-to-book ratio compares the market price to that net worth to gauge how cheaply or richly a stock is valued.
In one line
Book value is a company's net worth from its balance sheet (total assets minus total liabilities), and dividing it by the share count gives book value per share, so a stock trading at twice its book value per share has a price-to-book ratio of 2, a quick gauge of how richly the market prices the company's net assets.
BazaarBaaziSource & method
From balance sheet to per-share number
Book value, or shareholders' equity, is what would theoretically be left for shareholders if the company sold every asset at its balance-sheet value and paid off every liability. Divide that by the number of shares outstanding and you get book value per share, the net-asset backing behind each share you own.
The price-to-book ratio puts market price over that number. A P/B of 1 means the market values the company exactly at its net worth on paper. Below 1 can signal a stock trading under its accounting net worth, which is sometimes a bargain and sometimes a warning that the assets are worth less than the books claim. Well above 1 means the market is paying a premium for future earnings the balance sheet does not capture.
Where P/B is useful and where it misleads
P/B works best for asset-heavy businesses where the balance sheet genuinely reflects value: banks, NBFCs, manufacturers, infrastructure. For banks especially, P/B is a primary valuation lens, because their assets and liabilities are largely financial and marked close to real value.
It misleads for asset-light businesses. A software or consumer-brand company's real worth sits in code, brands, and people, none of which show up well on the balance sheet, so they routinely trade at high P/B multiples that are not expensive in the way they look. Always read P/B next to return on equity. A high P/B is justified only if the company earns a high return on that equity.
FAQ3 reader questions · AEO-eligible
Common questions on book value.
What is a good price-to-book ratio?
It depends on the sector. For asset-heavy businesses like banks and manufacturers, a P/B near or below 1 can look cheap, while quality asset-light companies routinely trade well above 1. Always judge P/B against the company's return on equity.
What does book value per share tell you?
It tells you the net-asset value backing each share, calculated as shareholders' equity divided by shares outstanding. It is the accounting net worth per share, distinct from the market price.
Why do some good stocks have high P/B ratios?
Asset-light businesses hold much of their value in brands, technology and people that the balance sheet does not fully capture, so a high price-to-book can be justified by strong future earnings and high return on equity.
Keep learning
Adjacent concepts every Indian retail investor should have straight.
Hub
All explainers
Basics
Face value
The number printed on the share versus what it trades for, and why dividends quote off face value.
Tax
LTCG and STCG tax
The capital-gains rates on listed equity after the 2024 overhaul, the holding period, and the exemption.
Corporate action
Bonus vs split
Two corporate actions that multiply your share count, and the one thing that actually changes.
IPO
What is GMP
The unofficial pre-listing price chatter, what it signals, and why it is not a guarantee.