The Price-to-Book (P/B) Ratio Calculator evaluates whether a stock is undervalued or overvalued by comparing its market price to its book value (net asset value). It is the primary valuation metric used for capital-intensive industries like Banking, NBFCs, and Manufacturing, where asset value is a more reliable floor than earnings.
Understanding P/B Ratio and ROE
A P/B ratio cannot be viewed in isolation. It must be paired with Return on Equity (ROE). A company with a high ROE justifies a higher P/B ratio. Conversely, a low P/B with a low ROE might be a 'value trap'.
P/B Ratio = Market Price per Share / Book Value per ShareWhere:
- • Book Value = (Total Assets - Total Liabilities) / Total Shares
- • Interpretation: P/B < 1.0 means you are buying the assets for less than their accounting value.
- • Fair P/B ≈ ROE% / 10 (A rough rule of thumb for standard growth).
Example: Valuing an Indian Bank
Bank A trades at ₹500. Its Book Value per share is ₹200.
1. P/B Ratio: 500 / 200 = 2.5x.
2. Peer Comparison: If the industry average is 3x, Bank A might be undervalued.
3. ROE Check: If Bank A has an ROE of 18% while peers have 12%, a 2.5x P/B is very attractive.
P/B Ratio vs P/E Ratio
When to use which metric:
| Metric | Best For | Why? |
|---|---|---|
| P/B Ratio | Banks, Real Estate, Infra | Assets drive value, earnings can be volatile |
| P/E Ratio | IT, FMCG, Services | Earnings drive value, low physical assets |
| EV/EBITDA | Capital Intensive / Debt heavy | Neutralizes debt impact |
Frequently Asked Questions
⚠️ Disclaimer
The figures provided by this calculator are estimates based on the inputs you provide and standard financial formulas. STOCKCALC.IN does not offer investment advice. Please consult a qualified financial advisor before making any investment decisions.