{"id":43897,"date":"2026-10-28T15:00:00","date_gmt":"2026-10-28T09:30:00","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=43897"},"modified":"2026-10-28T07:38:27","modified_gmt":"2026-10-28T02:08:27","slug":"p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/","title":{"rendered":"p\/e vs p\/b ratio: key differences and how investors use these valuation metrics"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_88 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#What_each_ratio_measures\" >What each ratio measures<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#Key_differences_between_PE_and_PB\" >Key differences between P\/E and P\/B<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#How_the_two_ratios_connect\" >How the two ratios connect<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#How_to_read_high_and_low_values\" >How to read high and low values<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#Which_ratio_fits_which_sector\" >Which ratio fits which sector<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#Trailing_and_forward_PE\" >Trailing and forward P\/E<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#What_investors_should_take_from_this\" >What investors should take from this<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n<p class=\"wp-block-paragraph\">A stock that is priced at \u20b9500 and has earnings of \u20b925 per share has a price-to-earnings (P\/E) ratio of 20. If the book value is \u20b9250 per share the price-to-book (P\/B) ratio is 2. These two numbers describe the price but one is based on what the company earns and the other is based on what the company owns.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The question of whether to use the P\/E ratio or the P\/B ratio depends on what kind of company&#8217;s being valued. The P\/E ratio works best for companies that have profits. The P\/B ratio works best for companies that are mostly made up of assets like banks. Neither of these numbers tells you if a stock is cheap. Both need to be compared with companies with the companys own history and with how good the business is.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_each_ratio_measures\"><\/span>What each ratio measures<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Metric<\/th><th class=\"has-text-align-left\" data-align=\"left\">Formula<\/th><th class=\"has-text-align-left\" data-align=\"left\">What it shows<\/th><\/tr><\/thead><tbody><tr><td>P\/E ratio<\/td><td>Share price divided by earnings per share (EPS)<\/td><td>How rupees the market pays for each rupee of annual profit<\/td><\/tr><tr><td>P\/B ratio<\/td><td>Share price divided by book value per share<\/td><td>How the market values the company against the assets on its balance sheet<\/td><\/tr><tr><td>Return on equity (ROE)<\/td><td>Net profit divided by shareholders equity<\/td><td>How much profit the company earns on the money shareholders have invested<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_differences_between_PE_and_PB\"><\/span>Key differences between P\/E and P\/B<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Feature<\/th><th class=\"has-text-align-left\" data-align=\"left\">P\/E ratio<\/th><th class=\"has-text-align-left\" data-align=\"left\">P\/B ratio<\/th><\/tr><\/thead><tbody><tr><td>Based on<\/td><td>Earnings, which come from the income statement<\/td><td>Book value, which comes from the balance sheet<\/td><\/tr><tr><td>Suits<\/td><td>Companies that are profitable and have stable or growing earnings<\/td><td>Banks, insurers and other businesses with lots of assets<\/td><\/tr><tr><td>Weak spot<\/td><td>It does not make sense if earnings are negative very small or inflated by one-time gains<\/td><td>It misses the value of businesses that do not have a lot of assets like software companies or brands<\/td><\/tr><tr><td>Sensitive to<\/td><td>Changes in profit and how expenses are accounted for<\/td><td>How assets are valued and how write-offs are handled<\/td><\/tr><tr><td>Typical comparison<\/td><td>With other companies in the same industry with the companys own history and with the overall market<\/td><td>With other companies and with the companys return on equity<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_the_two_ratios_connect\"><\/span>How the two ratios connect<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The P\/B ratio is equal to the P\/E ratio multiplied by the ROE. In the example given, a P\/E of 20 and an ROE of 10% (earnings of \u20b925 on a book value of \u20b9250) result in a P\/B of 20 \u00d7 0.10 = 2. A company with a ROE can support a higher P\/B than a company with a low ROE. A high P\/B may just mean that the company is very profitable.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_read_high_and_low_values\"><\/span>How to read high and low values<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Reading<\/th><th class=\"has-text-align-left\" data-align=\"left\">What it may indicate<\/th><th class=\"has-text-align-left\" data-align=\"left\">What else to check<\/th><\/tr><\/thead><tbody><tr><td>Low P\/E<\/td><td>The stock may be. Earnings may be expected to drop<\/td><td>Are the profits one-time, cyclical or shrinking?<\/td><\/tr><tr><td>High P\/E<\/td><td>The market may expect rapid growth or the stock may be overpriced<\/td><td>What is the growth rate behind the earnings and what is the P\/E of companies?<\/td><\/tr><tr><td>Low P\/B<\/td><td>The stock may trade below the value of its assets or the assets may not be strong<\/td><td>How strong are the assets, how high is the ROE and are there loans or write-offs?<\/td><\/tr><tr><td>High P\/B<\/td><td>The company may earn returns on its equity or the expectations may be too high<\/td><td>What is the ROE what is the growth outlook and how much does the company rely on intangible value?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">A low ratio does not mean a stock is a deal and a high ratio does not mean it is expensive. A stock can look cheap for years because the business is not doing well. This pattern is often called a value trap.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Which_ratio_fits_which_sector\"><\/span>Which ratio fits which sector<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">Type of business<\/th><th class=\"has-text-align-left\" data-align=\"left\">Useful ratio<\/th><th class=\"has-text-align-left\" data-align=\"left\">Reason<\/th><\/tr><\/thead><tbody><tr><td>Banks and financial companies<\/td><td>P\/B along with ROE<\/td><td>Their assets and liabilities are mostly financial so book value reflects the business well.<\/td><\/tr><tr><td>Stable consumer and technology companies<\/td><td>P\/E<\/td><td>Earnings are steady. Show the value that the balance sheet does not capture.<\/td><\/tr><tr><td>Cyclical companies like metals and commodities<\/td><td>P\/B or P\/E using earnings through a cycle<\/td><td>Earnings change a lot so a single year&#8217;s P\/E may not be reliable.<\/td><\/tr><tr><td>Companies with losses<\/td><td>P\/B or other measures<\/td><td>The P\/E has no meaning if earnings are negative. Other measures such as P\/B or sales-based ratios are used instead.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Trailing_and_forward_PE\"><\/span>Trailing and forward P\/E<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The trailing P\/E uses the 12 months of reported earnings. The forward P\/E uses earnings expected for the 12 months. A forward P\/E depends on forecasts that may be too high or too low. It is best to look at both numbers<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_investors_should_take_from_this\"><\/span>What investors should take from this<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Valuation ratios are tools that help point to companies that need attention. How to interpret them depends on the sector the company&#8217;s growth and its return on equity. Comparing a stock to others in the business and to its own history gives a more accurate picture than comparing across different industries.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Kuvera offers mutual funds, including index funds. The index factsheets provided by index providers list the P\/E and P\/B of each index. This shows how the overall market is valued.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>1. What is the difference between P\/E and P\/B ratio?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">P\/E compares the share price with earnings per share. P\/B compares it with book value per share.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2. Which ratio is better for banks?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">P\/B, along with ROE is more common for banks. Their balance sheets show the business better than earnings<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>3. Is a P\/E ratio always good?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">No. A low P\/E might mean the stock is undervalued or it might mean the market expects earnings to drop.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>4. How are P\/E, P\/B and ROE related?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">P\/B is equal to P\/E multiplied by ROE.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>5. Can P\/E be used for companies with losses?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Not really. Negative earnings make the P\/E ratio not useful. Other measures like P\/B or sales-based ratios are used instead.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Investments in securities are subject, to market risks. Read all documents carefully.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A stock that is priced at \u20b9500 and has earnings of \u20b925 per share has a price-to-earnings (P\/E) ratio of 20. If the book value is \u20b9250 per share the price-to-book (P\/B) ratio is 2. These two numbers describe the price but one is based on what the company earns and the other is based [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/p-e-vs-p-b-ratio-key-differences-and-how-investors-use-these-valuation-metrics\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":41,"featured_media":42721,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[91],"tags":[],"class_list":["post-43897","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment-advisor"],"aioseo_notices":[],"aioseo_head":"\n\t\t<!-- All in One SEO 5.0.2.1 - aioseo.com -->\n\t<meta name=\"description\" content=\"A stock that is priced at \u20b9500 and has earnings of \u20b925 per share has a price-to-earnings (P\/E) ratio of 20. 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