The price-to-book ratio (P/B) compares a company's share price with its book value, what the shareholders' part of the company is worth on paper. It is especially useful for banks and asset-heavy companies, and much less useful for businesses whose real value lies in brands, software or people. This article explains what book value is, how P/B is calculated, what it means when P/B is below 1, and where it misleads.
What book value is
A company's balance sheet lists everything it owns (assets) and everything it owes (liabilities). The difference is its net worth, also called shareholders' equity or book value. In plain words: what would be left on paper if the company sold everything it owns at the values in its accounts and paid everything it owes.
Book value per share is that net worth divided by the number of shares.
How P/B is calculated
Formula: P/B = share price ÷ book value per share, or equally market capitalisation ÷ net worth.
A P/B of 3 means the market values the company at three times its book value. A P/B of 1 means the market value equals book value. Below 1, the market values the company at less than its net worth on paper.
A simple example
A company has assets of ₹1,000 crore and liabilities of ₹600 crore, so its net worth is ₹400 crore. It has 10 crore shares, so book value per share is ₹40. If the share trades at ₹100, its P/B is 100 ÷ 40 = 2.5. If it traded at ₹30, its P/B would be 0.75, below book value.
Why P/B differs so much
Asset-heavy businesses such as banks, insurers, steel and energy companies have most of their value in assets that appear on the balance sheet, so their P/B is often modest. Asset-light businesses such as software, consumer brands and many services companies earn their money from things accounts do not fully record, such as brands, customer relationships and skilled people, so their market value can be many times their book value.
Return on equity (ROE) also matters. A company that earns a high return on its net worth usually trades at a higher P/B than one that earns a low return.
Buybacks can push P/B very high: when a company spends cash buying back its own shares, its net worth falls, so the ratio rises even if nothing else changes.
Example on PositoAI: P/B for banks and others, India
On 20 Oct 2026, banks traded at modest P/B ratios on PositoAI: HDFC Bank about 1.34 and State Bank of India about 1.45. ONGC traded below book value, at about 0.76, while asset-light TCS was about 8.3 and Asian Paints about 10.5.
Of 2,140 ranked Indian companies, 422 traded below book value (P/B under 1), including 67 of the 208 banks and financial companies. (Figures as on 20 Oct 2026; they change daily.)
Example on PositoAI: when P/B looks extreme, United States
Apple traded at a P/B of about 46.6, and Nvidia about 22.9. Apple's figure is high partly because years of large buybacks have reduced its net worth, which shows why P/B says little about such companies. JPMorgan Chase, a bank, was about 2.36. Of 4,001 ranked US companies, 846 traded below book value, including 218 of 778 financial companies. (As on 20 Oct 2026.)
What P/B below 1 can mean
A P/B below 1 is sometimes described as "trading below book value". It can mean the market doubts the values in the accounts (for example, loans that may not be repaid, or plants worth less than recorded), expects losses ahead, or sees a business earning a low return on its assets. Sometimes it reflects a company the market is overlooking. The ratio alone cannot tell which, so it is a reason to look closer, not a conclusion.
Common misconceptions
"Below book value means a bargain." It often reflects real doubts about asset values or future profits.
"A high P/B means overvalued." Asset-light businesses naturally trade far above book value.
"Book value is what the company is really worth." It is an accounting figure; assets may be worth more or less than recorded.
Frequently asked questions
Why is P/B used for banks?
Because a bank's assets (mostly loans and investments) are recorded close to their value, so book value is a meaningful anchor.
What is a good P/B?
It depends on the sector and on how much return the company earns on its net worth.
Can P/B be negative?
Yes, when liabilities exceed assets (negative net worth); the ratio is then not meaningful.
How does PositoAI calculate P/B?
Market capitalisation divided by net worth from the latest balance sheet.
How to use this on PositoAI
Every company's PosiFunda page shows its P/B, net worth and book value per share under Standard fundamentals, plus the Tangible Net Worth Ratio, which shows how much of that net worth is tangible. The Below book value Top 10 lists and the Low P/B screener list companies by P/B. PosiStep 12 of PosiCourse, PositoAI's free stock market course, explains the balance sheet.
Suggested reading
What Is the P/E Ratio? · How to Understand Company Debt · How to Read Quarterly Results · What is Equity? · What is Fundamental Analysis?
Summary
P/B compares the share price with book value per share, the shareholders' part of the company on paper. It is most useful for banks and asset-heavy businesses and least useful for asset-light ones, whose value lies in brands and people. High returns on equity and buybacks push P/B up. Trading below book value can signal doubts about asset values or profits, or an overlooked company, so it is a reason to look closer rather than a conclusion.