Book-To-Market Ratio

AAA

DEFINITION of 'Book-To-Market Ratio'

A ratio used to find the value of a company by comparing the book value of a firm to its market value. Book value is calculated by looking at the firm's historical cost, or accounting value. Market value is determined in the stock market through its market capitalization.

Formula:

Book-To-Market Ratio

INVESTOPEDIA EXPLAINS 'Book-To-Market Ratio'

The book-to-market ratio attempts to identify undervalued or overvalued securities by taking the book value and dividing it by market value.

In basic terms, if the ratio is above 1 then the stock is undervalued; if it is less than 1, the stock is overvalued.

RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  4. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  5. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  6. Stockholders' Equity

    The portion of the balance sheet that represents the capital ...
Related Articles
  1. Using The Price-To-Book Ratio To Evaluate ...
    Forex Education

    Using The Price-To-Book Ratio To Evaluate ...

  2. How To Invest In The Nikkei 225
    Mutual Funds & ETFs

    How To Invest In The Nikkei 225

  3. A Guide To Japan’s Nikkei 225 Index
    Investing Basics

    A Guide To Japan’s Nikkei 225 Index

  4. Wall Street's Enduring Impact On The ...
    Investing Basics

    Wall Street's Enduring Impact On The ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center