Price to book

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.

A share at ₹280 with a book value of ₹66 trades at 4.24 times.

The multiple only makes sense next to return on equity, and the relationship between them is not a convention but arithmetic: a company earning exactly its cost of equity should trade at one times book, and the premium above that is a function of 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% does not, whatever its growth.

Reading the two together is the single 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 the work.