P/B, EV/EBITDA & Dividend Yield

Introduction

Beyond P/E, analysts use P/B, EV/EBITDA, and dividend yield to value companies from different angles. This lesson explains each.

Price-to-Book (P/B)

P/B = Share price ÷ Book value per share.

• Book value ≈ net asset value (equity)
• A low P/B can signal an asset-heavy company trading cheaply
• It's less meaningful for asset-light or intangible-heavy businesses

EV/EBITDA

EV (enterprise value) = Market cap + debt − cash.

EV/EBITDA divides enterprise value by earnings before interest, taxes, depreciation and amortization.

• Useful because it accounts for debt and cash
• Comparable across companies with different capital structures
• Roughly like a P/E but for the whole firm, ignoring financing/accounting choices

Dividend Yield

Dividend yield = Annual dividend ÷ Share price.

Dividend yield = Dividend / Price

• Higher yield = more income per dollar invested
• A very high yield can signal a risky, falling stock (yield looks high because price collapsed)

Using Ratios Together

No single ratio is enough:

• P/E — earnings valuation
• P/B — asset-based valuation
• EV/EBITDA — whole-firm valuation, capital-structure neutral
• Yield — income valuation

Real-World Example

A capital-intensive utility looks expensive on P/E but reasonable on EV/EBITDA (it carries debt and large depreciation). A tech firm's P/B is high but it's asset-light, so P/B is less relevant. Choose the ratios that fit the business.

Summary

• P/B = price vs book value (asset-based)
• EV/EBITDA = valuation of the whole firm, debt-aware
• Dividend yield = income per dollar invested
• A very high yield can signal distress, not just value
• Use several ratios together, matched to the business

Next Lesson

How to compare ratios the right way.