Chapters in Fundamental Analysis
Chapter 2 of 7 · 6 min read
Valuation ratios: P/E, P/B, EV/EBITDA, dividend yield
How to tell whether a price is rich or cheap relative to earnings, assets and cash flow.
A ratio makes companies comparable. None works alone; compare within a sector and against history.
The core four
- P/E = price ÷ earnings per share. How many rupees you pay for one rupee of profit.
- P/B = price ÷ book value per share. Useful for banks and asset-heavy firms.
- EV/EBITDA = enterprise value ÷ operating earnings. Neutral to capital structure, good across leveraged peers.
- Dividend yield = annual dividend ÷ price. Income return, not total return.
Cheap is not always good
A low P/E can signal a value trap: earnings may be about to fall. A high P/E can be justified by fast, durable growth. Ask what growth and risk the multiple already prices in.
Key takeaways
- Use sector-appropriate ratios (P/B for banks, EV/EBITDA for capital-heavy firms).
- Compare to peers and to the stock's own history.
- A multiple is a question, not an answer.
Put it into practice
Open the live page on Market Intelligence and see this concept on real data.
Keep learning
- Nifty P/E ratio: what it means · Fundamental Analysis
- Sector analysis and relative valuation · Fundamental Analysis
Education only, not investment advice. Updated 2026-10-09.