What is PB ratio, How to calculate and it's Benifits...

When we buy something, it's important to know its true value and purchase it at the right price. Paying more than its actual value would result in a loss for us.

Today, we'll learn about a ratio called the P/B ratio, which stands for Price to Book Value Ratio.

The "P" in the P/B ratio represents the market value of a company, while the "B" represents the book value of the company. Essentially, the P/B ratio is the ratio of a company's market value to its book value.

To calculate the P/B ratio, we divide the market value by the book value.

For example, if a company has a market value of Rs 200 and a book value of Rs 100, the P/B ratio would be 2.

In this case:

P/B Ratio = Market Value / Book Value

200 / 100 = 2

This means that the market value of the company is twice its book value.

Therefore, we should consider buying the company for twice its book value.

The application of the P/B ratio is as follows:

If a company's P/B ratio is greater than 1, it means its market value is higher than its book value.

If a company's P/B ratio is less than 1, it means its market value is lower than its book value.

If a company's P/B ratio is less than 1, we may consider buying that company.

However, most investors prefer to buy good companies, so the market value is usually higher than the book value. Therefore, a good company's P/B ratio is generally greater than 1.

If, for some reason, a good company has a P/B ratio less than 1 (meaning its market value is less than its book value), then we might consider regularly buying and holding that company.

It's important to note that the P/B ratio is just one factor to consider when investing in the stock market. We should not make investment decisions solely based on this ratio...

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