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May 1, 2026 | 7 min read | By Simplegence

What Is Book Value and Price-to-Book Ratio — Explained for Investors

Q: What is a good P/B ratio for Indian stocks?

There is no single good P/B ratio — it depends entirely on the sector. Private banks typically trade at 2–4× book value, PSU banks at 0.5–1.5×, FMCG companies at 8–20×, and IT companies at 5–12×. For asset-light businesses (IT, pharma, FMCG), a high P/B is normal because intangible assets like brands and patents are not on the balance sheet. For asset-heavy businesses (banks, real estate), P/B is the most relevant valuation metric.

Q: What does P/B below 1 mean?

A P/B below 1 means the stock is trading below its net asset value — the market believes the company's assets are worth less than their book value. For banks, this almost always signals NPA (non-performing asset) stress — the market doubts the quality of the loan book. For other companies, it can signal a business in serious trouble. Occasionally, a P/B below 1 is an opportunity — but investigate the reason carefully before acting.

Q: Why doesn't P/B work for IT and FMCG companies?

P/B does not work well for asset-light companies because their most valuable assets — brands, software, patents, human capital, distribution networks — are not recorded on the balance sheet (or recorded at cost, not market value). A company like TCS has minimal physical assets but enormous value in its brand, client relationships, and IP. These intangibles make book value meaningless as a valuation anchor. Use PE, EV/EBITDA, or DCF for asset-light businesses.

Q: What is the connection between ROE and P/B ratio?

There is a direct mathematical relationship: Justified P/B = ROE ÷ Cost of Equity. A company that consistently earns ROE of 20% when the cost of equity is 10% deserves a P/B of 2×. A company that earns ROE of 8% when the cost of equity is 12% deserves a P/B below 1 — it is destroying value. This is why high-ROE companies like HDFC Bank and Asian Paints command high P/B ratios.

Q: How do I calculate book value per share?

Book Value Per Share = (Total Shareholders' Equity) ÷ (Total Number of Shares Outstanding). You can find shareholders' equity on the balance sheet (total assets minus total liabilities). Divide by the number of shares to get book value per share. Then divide the current share price by this number to get the P/B ratio. Screener.in shows P/B directly for all listed Indian stocks.

Gajanand SharmaFounder, Simplegence · LinkedIn ↗Published 30 April 2026

The Metric That Matters Most for Banks and Asset-Heavy Businesses

The Price-to-Book (P/B) ratio is one of the oldest valuation metrics in finance — Ben Graham, the father of value investing, used it as a cornerstone of his stock selection process. It compares what you pay (share price) to what the company actually owns minus what it owes (net asset value).

Used correctly, P/B is a powerful tool for evaluating banks, NBFCs, real estate companies, and manufacturing businesses. Used incorrectly — applying it to IT, FMCG, or pharma companies — it can lead you completely astray.

This guide covers the P/B ratio formula, what book value per share means, sector benchmarks for India, the critical connection between ROE and P/B, and when to ignore this metric entirely.

What Is Book Value?

Book value is the net worth of a company as recorded on its balance sheet — what is left for shareholders after all liabilities are paid.

Book Value = Total Assets − Total Liabilities

Divide book value by the number of shares outstanding to get Book Value Per Share (BVPS).

BVPS = Shareholders' Equity ÷ Total Shares Outstanding

For example, if a company has total assets of ₹5,000 crore, total liabilities of ₹3,000 crore, and 10 crore shares outstanding, then: Book Value = ₹2,000 crore; BVPS = ₹200 per share.

What Does Book Value Represent?

Book value is the accounting value of the company — what shareholders would theoretically receive if the company were liquidated today at balance sheet values. It includes physical assets (factories, equipment, land), financial assets (loans, investments), and retained profits accumulated over the years.

Important Limitation:

Book value is based on historical cost, not current market value. A factory purchased 20 years ago for ₹50 crore might be worth ₹500 crore today — or ₹10 crore if it is obsolete. Book value does not capture this. For asset-light companies, it also ignores the most valuable assets: brands, software, patents, and human capital.

The Price-to-Book (P/B) Ratio

The P/B ratio compares the market price of a stock to its book value per share.

P/B Ratio = Current Share Price ÷ Book Value Per Share

Using the earlier example: if BVPS is ₹200 and the share trades at ₹500, the P/B ratio is 500 ÷ 200 = 2.5×.

This means the market is valuing the company at 2.5 times its net assets. Investors are paying a ₹300 premium per share over book value — because they expect the company to generate returns above the cost of capital.

Interpreting the P/B Ratio

P/B > 1: Market values the company above its book value — premium for profitability, growth expectations, or intangible assets
P/B = 1: Market is paying exactly book value — company is fairly valued on asset basis
P/B < 1: Market believes the company's assets are worth less than book value — distress signal, asset quality concerns, or sector headwinds

P/B Ratio Benchmarks — Indian Sector Comparison

Sector	Typical P/B Range	Why
Private Banks (HDFC, ICICI, Kotak)	2–4×	High ROE, strong loan book, brand trust
PSU Banks (SBI, BoB, PNB)	0.5–1.5×	NPA cycles, lower ROE, government interference
FMCG (HUL, Nestle, Dabur)	8–20×	Intangible brand value not on balance sheet
IT Services (TCS, Infosys)	5–12×	Asset-light model, high ROE, no physical assets
Pharma (Sun Pharma, Dr Reddy's)	3–7×	R&D investment, IP portfolio not fully captured
Cement (UltraTech, Shree)	3–6×	Asset-heavy but high capacity utilisation premium
Real Estate (DLF, Prestige)	1–3×	Land values can diverge significantly from book
NBFCs (Bajaj Finance, Cholamandalam)	3–7×	High-quality loan book, superior ROE

Ranges are illustrative historical averages. Actual values change with market conditions and earnings cycles.

The ROE–P/B Connection: The Most Important Relationship

The most powerful insight in P/B analysis is the direct link between Return on Equity (ROE) and the justified P/B ratio.

Justified P/B = ROE ÷ Cost of Equity (Ke)

A company that earns ROE of 20% when the cost of equity is 10% deserves a P/B of 2×. A company that earns ROE of 30% deserves P/B of 3×. A company that earns ROE below the cost of equity is destroying value and deserves a P/B below 1.

ROE	Cost of Equity (Ke)	Justified P/B	Interpretation
8%	12%	0.67×	Destroying value — trade below book
12%	12%	1.0×	Fair value — earns exactly cost of equity
20%	12%	1.67×	Value creation — premium justified
30%	12%	2.5×	Exceptional value creation

This is why HDFC Bank (sustained ROE of 16–18%) historically commanded P/B of 3–4×, while PSU banks with ROE of 8–10% trade at P/B of 0.8–1.2×.

Rule of Thumb:

Before buying a bank or NBFC, compare its P/B to its ROE trajectory. A bank with rising ROE trading at P/B below peers is often a better bet than a high P/B bank with falling ROE.

When to Use P/B — and When to Ignore It

✅ Use P/B for these sectors

Banks and NBFCs: Their primary assets are financial (loans) — book value directly reflects the quality of their loan portfolio
Real estate companies: Land and property assets drive value; P/B helps assess if you are paying a fair price for the asset base
Manufacturing and capital-intensive industries: Cement, steel, power — where physical asset value matters
Holding companies: P/B relative to the market value of their investee companies reveals holding company discounts

❌ Ignore P/B for these sectors

IT services: TCS and Infosys have minimal physical assets — their value is in people, client relationships, and IP — none of which is on the balance sheet at fair value
FMCG: Brands like Maggi, Lux, or Colgate are worth thousands of crores but show up at minimal values in the books
Pharma: Drug patents and R&D pipelines are not captured in book value
Platforms and marketplaces: Network effects have no balance sheet representation

Master Fundamental Analysis — Read the Complete Guide

P/B ratio is just one piece. Our complete guide covers PE, ROE, ROCE, cash flows, moats, and everything you need to analyse any Indian stock from scratch.

Read the Complete Fundamental Analysis Guide →

Frequently Asked Questions

What is a good P/B ratio for Indian stocks?

There is no single good P/B ratio — it depends entirely on the sector. Private banks typically trade at 2–4× book value, PSU banks at 0.5–1.5×, FMCG companies at 8–20×, and IT companies at 5–12×. For asset-light businesses (IT, pharma, FMCG), a high P/B is normal because intangible assets like brands and patents are not on the balance sheet. For asset-heavy businesses (banks, real estate), P/B is the most relevant valuation metric.

What does P/B below 1 mean?

A P/B below 1 means the stock is trading below its net asset value — the market believes the company's assets are worth less than their book value. For banks, this almost always signals NPA (non-performing asset) stress — the market doubts the quality of the loan book. For other companies, it can signal a business in serious trouble. Occasionally, a P/B below 1 is an opportunity — but investigate the reason carefully before acting.

Why doesn't P/B work for IT and FMCG companies?

P/B does not work well for asset-light companies because their most valuable assets — brands, software, patents, human capital, distribution networks — are not recorded on the balance sheet at fair value. A company like TCS has minimal physical assets but enormous value in its brand and client relationships. These intangibles make book value meaningless as a valuation anchor. Use PE, EV/EBITDA, or DCF for asset-light businesses instead.

What is the connection between ROE and P/B ratio?

There is a direct mathematical relationship: Justified P/B = ROE ÷ Cost of Equity. A company that consistently earns ROE of 20% when the cost of equity is 10% deserves a P/B of 2×. A company that earns ROE below its cost of equity deserves a P/B below 1 — it is destroying shareholder value. This is why high-ROE companies like HDFC Bank and Asian Paints command high P/B ratios.

How do I calculate book value per share?

Book Value Per Share = Total Shareholders' Equity ÷ Total Number of Shares Outstanding. You can find shareholders' equity on the balance sheet (total assets minus total liabilities). Divide by the number of shares to get book value per share. Then divide the current share price by this number to get the P/B ratio. Screener.in shows P/B directly for all listed Indian stocks — search the company name and check the Key Metrics section.