BAJAJ BROKING

Notification close image
No new Notification messages
card image
🚨 TRADING HOLIDAY 🚨
The NSE and BSE will remain closed for trading and settlement on Wednesday, August 27, 2025, on account of Ganesh Chaturthi.
delete image
card image
Start your SIP with just ₹100
Choose from 4,000+ Mutual Funds on Bajaj Broking
delete image
card image
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
delete image
card image
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
delete image
card image
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.
delete image

What is Book to Market Ratio?

When investors consider buying a company’s shares, they often use specific financial ratios to decide if it’s the right move. One such commonly used ratio is the Price-to-Book (P/B) ratio, also known as the Market-to-Book ratio.

Understanding Book-to-Market Ratio

The Book-to-Market ratio illustrates the relationship between a company’s book value (its worth on paper) and its market value (what people are willing to pay for its shares).

Let’s break it down with an example:

If a company’s share trades at ₹150 in the market and its book value per share is ₹100, the P/B ratio is:
150 ÷ 100 = 1.5 This means the market is willing to pay ₹1.50 for every ₹1 of the company’s net assets.

So essentially, the P/B ratio tells us how the market values a company compared to the value of what it owns. To make the comparison more meaningful, both values are often calculated on a per-share basis. That means:

  • Market value per share = Total market value ÷ Total shares

  • Book value per share = Total net assets ÷ Total shares

How does Book-to-Market Ratio Work?

The book-to-market ratio helps investors compare a company’s actual accounting value to its market value. The book value is what’s left after subtracting liabilities from assets, while the market value is calculated by multiplying the current share price by the total number of shares. This ratio is a handy tool for evaluating whether a company might be undervalued or overvalued in the stock market.

How to Use the Book-to-Market Ratio?

The Book-to-Market ratio is simply the book value divided by the market value of the company. It helps investors judge whether a stock is priced fairly. The formula is:

Book-to-Market Ratio = Common Shareholders’ Equity ÷ Market Capitalization

  • Ratio above 1:

 The company might be undervalued. This often attracts value investors because the stock is cheaper than the actual value of the company’s assets.

  • Ratio below 1: 

The stock may be overvalued. Here, investors are paying more than what the company is worth on paper. However, this could also mean that investors expect strong future growth, particularly in sectors such as technology, where physical assets are minimal.

Book-to-Market Ratio Vs Market-to-Book Ratio

Both ratios are used to compare a company’s actual worth to what it’s trading for in the stock market, but they’re just inverted versions of each other.

  • Market-to-Book (P/B) = Market Value ÷ Book Value

  • Book-to-Market = Book Value ÷ Market Value

So, a P/B ratio over 1 suggests a company might be overvalued, while a Book-to-Market ratio over 1 suggests it might be undervalued.

In short, whether you use the Book-to-Market or Market-to-Book ratio, both help investors figure out if a company’s shares are priced higher or lower than they should be based on its actual value.

Conclusion

Value investors are on the lookout for stocks that appear to be cheaper than their actual worth. A low P/B ratio might indicate that a stock is undervalued, and that’s exactly what value investors want to spot.

However, it’s essential to recognise that the meaning and usefulness of the Price-to-Book (P/B) ratio can vary significantly across different industries. There is no one-size-fits-all value that works across all sectors. For a fair comparison, companies should ideally be evaluated within the same industry using similar benchmarks.

Because of this, relying solely on the P/B ratio may give a skewed picture. That’s why many investors also consider other financial metrics, along with the P/B ratio, to gain a more accurate understanding of whether a stock is undervalued or overpriced.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Bajaj Broking Financial Services Ltd. (BFSL) makes no recommendations to buy or sell securities.

Share this article: 

Frequently Asked Questions

No result found

search icon
investment-card-icon

Things to Know Before Investing in High P/E Stocks

Understand high P/E stocks, what the valuation means, how to manage risks, and when these shares may align with your long-term investment goals

investment-card-icon

Cash Flow Statement

Learn what a cash flow statement is, its structure, key components like operations, investing, and financing, and why it matters in accounting.

investment-card-icon

Counterparty Risk - Meaning, Types and Example

Counterparty risk refers to the chance that the opposing party in an investment, credit, or trade deal may fail to fulfill their obligations. Read the full blog.

investment-card-icon

What is Money Markets: Features, Instruments & Benefits

The money market trades short-term debt instruments known for high safety and typically lower returns compared to other investments.

investment-card-icon

5 Different Types of Dividends and Their Impact on Stocks

Get a clear view of 5 key dividend types and how they impact share prices. Know cash, stock, property, scrip, and liquidating Dividends in detail here.

investment-card-icon

Basis Points (BPS)

Confused about Basis Points? Get clarity on BPS meaning, calculation, real-life examples, and its role in trading, bonds, credit cards, and financial decision-making.

investment-card-icon

Capital Fund Meaning with Examples and Key Methods

Capital funding explained through practical methods, stock and debt issuance, cost factors, and relatable business examples for strong financial decision-making.

investment-card-icon

Asset Coverage Ratio: Meaning, Formula & Key Highlights

Asset coverage ratio shows how well a company can cover debts with assets. Know the formula, features, uses, and see a detailed example for better clarity.

investment-card-icon

Blue Chip vs Large Cap: Key Differences

Blue chip vs large cap stocks: Compare their characteristics, benefits, and risks to decide which fits your portfolio and supports your long-term investment goals.

investment-card-icon

High Priced vs Low-Priced Stocks: Key Differences

High-priced vs low-priced stocks: Compare their risks, returns, and which fits your goals. Get key insights to align your stock choices with your strategy.

Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

[ Read More ]

For more disclaimer, check here : https://www.bajajbroking.in/disclaimer

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

10 lakh+ Users

icon-with-text

4.4 App Rating

icon-with-text

4 Languages

icon-with-text

₹5600+ Cr MTF Book

icon-with-text
banner-icon

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|

Please Enter Mobile Number

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|