Price-to-earnings (P/E) and price-to-book (P/B) are both valuation multiples — they express a company's share price as a multiple of some other per-share figure, rather than describing the business itself the way a margin or growth figure does.

P/E divides share price by earnings per share (EPS). A P/E of 20 means the market price is 20 times the company's most recent annual per-share earnings. Because P/E relates price to a single year of profit, it can move sharply when earnings change even if the share price itself hasn't, and it's undefined or negative for a company reporting a loss, since the denominator is zero or negative in that case.

P/B divides share price by book value per share (total shareholders' equity divided by shares outstanding — the accounting value of what would remain for shareholders if every asset were sold at its recorded value and every liability paid off). Unlike P/E, which relates price to a flow — one period's earnings — P/B relates price to a stock: a balance-sheet figure at a single point in time.

Neither multiple means the same thing across every industry. A capital-light business — one that owns comparatively few physical assets relative to its earnings, such as a software or services company — will often show a low book value and therefore a structurally higher P/B than a capital-heavy business like a manufacturer or a bank, even with otherwise similar profitability. The same is true of P/E: industries with different typical growth rates and capital needs have historically traded at different typical P/E ranges, which is why comparing a company's P/E or P/B against others in the same industry, rather than against the market as a whole, is more common practice than comparing across unrelated sectors.

Both multiples combine two things: a company's own fundamentals (earnings, book value) and the price the market currently assigns to those fundamentals. Because of that second half, P/E and P/B are inherently different in character from a fundamentals-only metric like ROE or a margin — they move whenever the share price moves, even on a day when nothing about the underlying business has changed.