The PBV ratio compares the market price of the stock with its book value. It is computed as market price per share upon book value per share.

The book value is the accounting value per share, in the books of the company. It represents the net worth (capital plus reserves) per share. An important limitation of this number is that most assets on the books of the company are shown at cost less depreciation, and not inflation adjusted. Therefore the realizable value of the assets is not reflected in the book value. However, in a company which has been building reserves from sustained profitability, the book value is an important indicator of value. Since the book value considers the net worth of a company, it is an important number in fundamental analysis that is practiced by the commodity tips providers.

If the market price of the stock were lower than the book value (i.e., the PBV is less than one), the stock is deemed to be undervalued and undiscovered. Analysts would concur that the market prices have fallen more than what is justified by the value of the stock, and would consider the price attractive to buy. In a bullish market when prices move up rapidly, the PBV would go up, indicating rich valuation in the market. However, please note that there may be other reasons for a stock being sold for less than its book value such as the poor investments made by the firm in the past which needs to be written down subsequently. Hence investors should not rely only on PBV for their investment decisions and should understand that not all stocks that trade at a discount on their book values are bargains (undervalued). Since the national language of India is Hindi, there are many advisory firms that provide share market tips in Hindi.


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