The Market-to-Book ratio, as a rough proxy for Tobin’s q, has been a common measure of firm value for over two decades. The ratio has, however, had two distinct interpretations. One emphasizes it as reflecting efficiency and growth, and the other as proxy for risk. Herein we explore these interpretations in light of the constant growth discount model. We argue that both perspectives are theoretically sound. Upon testing these interpretations, we find that efficiency and growth variables explain the bulk of the variance in the MB ratio, and the contribution of risk is both mixed and limited. Our results suggest that the MB ratio largely reflects the success of managers in delivering strong operating performance and growth in the net assets of the firm.