# Price to Book Value (PB) Ratio

Price to Book Value Ratio is 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.
$$Price\quad to\quad Book\quad Value(PB)\quad Ratio=$$$$\frac { Market\quad Price\quad per\quad Share }{ Book\quad Value\quad per\quad Share }$$ Market Price per Share is the current market price of each share of the company.
Where,
And Book Value Per Share = (Total Assets–Total Liabilities) / Total Number of Shares.

#### 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 