Loading the player...

What is the 'Book-To-Market Ratio'

The book-to-market ratio is 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

BREAKING DOWN '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. Stock Market Capitalization To ...

    A ratio used to determine whether an overall market is undervalued ...
  2. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  3. Price-To-Book Ratio - P/B Ratio

    Price to Book Ratio (P/B Ratio) is a ratio used to compare a ...
  4. Relative Value

    A method of determining an asset's value that takes into account ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  6. Price to Tangible Book Value - ...

    A valuation ratio expressing the price of a security compared ...
Related Articles
  1. Investing

    Use the Book-to-Market Ratio

    The book-to-market ratio compares the book value of a company to the market value of that same company.
  2. Investing

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  3. Investing

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  4. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
  5. Investing

    Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  6. Investing

    How to Invest Your Excess Cash in Undervalued Securities

    Learn how even small investors can shoot for substantial capital gains by starting to invest their excess cash in undervalued securities.
  7. Investing

    Finding Solid Buy-And-Hold Stocks

    Find out how to look at the big picture - even when the market's short-term outlook is less than rosy.
  8. Investing

    Evaluating Companies Using Price-To-Book Ratio

    The price-to-book ratio can help investors find undervalued companies.
  9. Financial Advisor

    Value Investing Strategies in a Volatile Market

    Volatile markets are a scary time for uneducated investors, but value investors use volatile periods as an opportunity to buy stocks at a discount.
  10. Investing

    PEG Ratio

    Learn more about how this ratio is used to determine a stock's value based on its earnings growth.
RELATED FAQS
  1. Is there a way to include intangible assets in book-to-market ratio calculations?

    Find out more about the book-to-market ratio and how to calculate a public company's book-to-market ratio including its intangible ... Read Answer >>
  2. What are the alternatives to book-to-market ratio analysis?

    Read about some of the common alternatives to book-to-market ratio that fundamental investors can use to value a publicly ... Read Answer >>
  3. Why is the P/E ratio a better metric than book-to-market ratio analysis?

    Read about the most popular company valuation metric, Price-to-Earnings, and how it compares to the lesser-used book-to-market ... Read Answer >>
  4. What is the difference between book value and market value

    Learn the differences between book value and market value, and see how investors use each type to determine if a company ... Read Answer >>
  5. What is the difference between book-to-market ratio and cash flow to price?

    Learn about the differences between the book-to-market ratio and cash-flow-to-price ratio, as well as in which contexts investors ... Read Answer >>
  6. What does it mean if a share's market value is significantly higher than its book ...

    Learn how investors and analysts compare the market value of stock shares to the book value per common share; discover what ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center