Glossarytaught in M3.06, M5.01
Price to book
Also called P/B, price to book value, PBV.
Share price divided by book value per share. The standard lens for banks and lenders, and close to useless for a business whose assets are intangible.
At ₹280 against a book value of ₹66, the share trades at 4.24 times.
Price to book only makes sense next to return on equity, and the relationship between them is arithmetic. A company earning exactly its cost of equity should trade at one times book, and the premium above that depends on how far the return exceeds the cost and how long it lasts. A bank earning 18% against a 13% cost of equity deserves a premium. One earning 9% doesn't, whatever its growth.
Reading the two together is the most useful skill in financial-sector analysis.
Plot the peer set with return on equity on one axis and price to book on the other. The outliers are your work.
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