Price to Book Ratio

Book value is what each shareholder would theoretically receive if the company sold everything and shut down today. An empty shop worth ₹100 with two equal shareholders has a book value of ₹50 per share.

P/B works where capital genuinely sits in hard assets: cement, power, infrastructure, steel. It works especially well for banks and financial companies, because their assets are loans, and book value captures a lending business almost exactly. It also works for commodity businesses with weak brand influence. One cement brand does not sell at ₹300 and another at ₹600; the gap is about ₹10 a bag, so the plant earns the money, not the brand.

P/B fails for IT and services companies. Their business is 5,000 developers and salespeople in an office, and salaries are an expense, never an asset, so book value is structurally low. It also fails for brand and IP driven companies, because brand does not appear on the balance sheet. Only touch-and-feel assets do.