What is P/B ratio (Price to Book value)?

P/B Ratio:-

In general P/B = Share Price/Book Value per share

Now What is Book Value(B.V) per Share?

If the company become bankrupt than how much amount you get state 'BOOK VALUE' 

Book Value = Assets - Liabilities

But it is Total Book Value and you need Book value per share, so that we divides by total share of the company i.e

Book Value per share = Book Value/Total Share

Now let us take an example-

Take Asset=1000 and Liabilities=200

so Book Value Become 800 (Assets - Liabilities)

Let Total Share of the Company is 100

then Book Value per share = 800/100 = 8

If Share Price = 24 (Let us assume)

Then P/B Ratio = 24/8 = 3

Which means for every 1Rs net asset of the company, you pay 3Rs to buy the share and you buy the share at 24Rs (assume above)  and company is become bankrupt then you get 8Rs.

Where to Apply?

Always give importance to those company which have hard Asset like steel, Cement, or any Infrastructure.

Don't take those which doesn't need much hard assets like TCS, Wipro or any other Software Company.

Tip- P/B Ratio should always between 3 to 6 Ratio