They are the same ratio expressed two ways. M/B (market-to-book) divides total market capitalization by total book value of equity. P/B (price-to-book) divides the share price by book value per share. Both produce identical numbers because numerator and denominator are scaled by the same share count. M/B is more common in academic papers and corporate finance; P/B is more common on equity-research desks and retail-investor platforms.

An M/B below 1.0 means the market values the company at less than its accounting book equity. Sometimes this is a genuine value opportunity — temporary mispricing or sentiment-driven selling. More often it signals investors expect future losses, impaired assets, or a return on equity below the cost of equity. Banks trading materially below tangible book during stress periods (2008, 2023) are the classic example. Always check for hidden liabilities, deferred tax assets that may be written down, and recent goodwill before treating a sub-1.0x M/B as cheap.

U.S. GAAP requires most internally developed intangibles — software code, brand equity, customer relationships, R&D — to be expensed as incurred rather than capitalized on the balance sheet. For asset-light software firms, the bulk of economic value sits in those expensed intangibles, so book equity captures only a small slice of what investors are buying. Reported M/B ratios of 5x–20x for high-growth SaaS reflect the accounting omission, not necessarily expensive valuation; analysts use EV/Revenue, EV/EBITDA, and rule-of-40 metrics instead.

NYU Stern's Damodaran data archive publishes industry-median P/B figures each January. Typical ranges: U.S. banks 1.0x–1.5x (sometimes below 1.0x during stress), insurers 1.0x–1.8x, mature industrials and consumer staples 2x–3x, healthcare 3x–5x, and software/SaaS 5x–20x. Within a sector, dispersion is driven mainly by return on equity, growth, and balance-sheet leverage. Cross-sector M/B comparisons are nearly meaningless; always benchmark against same-industry peers.

Fama and French (1992, 1993) identified book-to-market (the reciprocal of M/B) as a robust predictor of cross-sectional stock returns alongside market beta and firm size. High book-to-market (low M/B) stocks — "value" stocks — historically earned higher average returns than low book-to-market (high M/B) "growth" stocks. This value premium became the HML (High Minus Low) factor in the Three-Factor Model and underpins much of modern factor investing. M/B is therefore not just a valuation gauge but an input to academic and quantitative return models.

Book equity includes acquired intangibles (goodwill, purchased patents, customer lists) but excludes internally developed ones. Two firms with identical economic value can have radically different M/B ratios depending on whether they grew organically or through acquisitions. A company that built its brand internally will look expensive on M/B; an otherwise identical company that bought the same brand will look cheaper because the purchase price sits in book equity as goodwill. Comparing M/B to tangible M/B (excluding goodwill) helps surface this distortion.