Price to Book Value Ratio is

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**a type of Profitability Ratio**that determines**the relative value of the market price of a share to its book value.**This ratio compares the Market value of a company with its Book Value.Price to Book Value (PB) Ratio = Market Price per Share / Book Value per Share

**Where,****Market Price per Share is the current market price of each share of the company.****And Book Value Per Share = (Total Assets–Total Liabilities) / Total Number of Shares.**

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**PB Ratio can also be calculated as:**

**Price to Book Value (PB) Ratio = Market Capitalization / Book Value**

**Where,****Market Capitalization = Current Market Price per Share * Total Shares of Company.****And Book Value = Total Assets–Total Liabilities**

## Significance and Interpretation

- PB Ratio is a significant ratio that compares the value of a company in the market relative to its Book Value.
**PB Ratio = 1:**This implies that Market Capitalization, as well as Book Value of a company, is the same, which is the ideal scenario for a company.**PB Ratio > 1:**This implies that the Market Value of a Company is more than its own Book Value, this happens when the market is confident about the high performance and growth of the company in the future.**PB Ratio < 1:**This implies that the Market value of a company is less than its own Book Value, this happens when the performance of the company is not expected to be good.

### Examples

**Example 1: Given below are few details of M/S XYZ Ltd., use them an calculate the PB Ratio for M/S XYZ Ltd.**Particulars | Amount (in Rs.) |
---|---|

Equity Share Capital @ Rs 10.00 each | 5000000.00 |

Total Assets | 5000000.00 |

Total Liabilities | 2500000.00 |

Market Price per Share | 12.00 |

**Solution:**- Total Number of Common Equity = 5000000 / 10 = 500000
- Book Value of all Shares = Total Assets – Total Liabilities = Rs. 2500000.00
- Book Value per Share = Book Value of all Shares / Total Number of Common Equity = Rs. 5
- PB Ratio = Market Price per Share / Book Value per Share = 12 / 5
**PB Ratio = 12/5 or 2.4**