Book-To-Market Ratio

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. Price-To-Book Ratio - P/B Ratio

    Price to Book Ratio (P/B Ratio) is a ratio used to compare a ...
  2. Return on Market Value of Equity ...

    Return on market value of equity (ROME) is a comparative measure ...
  3. Adjusted Net Worth

    A method for valuing an insurance company using capital values, ...
  4. Abnormal Earnings Valuation Model

    A method for determining a company's worth that is based on book ...
  5. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  6. Market Value Of Equity

    The total dollar market value of all of a company's outstanding ...
Related Articles
  1. 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.
  2. Investing Basics

    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.
  3. Fundamental Analysis

    Evaluating Companies Using Price-To-Book Ratio

    The price-to-book ratio can help investors find undervalued companies.
  4. Options & Futures

    Stock-Picking Strategies: Value Investing

    Value investing is one of the best known stock-picking methods. In the 1930s, Benjamin Graham and David Dodd, finance professors at Columbia University, laid out what many consider to be the ...
  5. Stock Analysis

    Expedia and More Big Movers on the Nasdaq on September 21, 2012

    This morning, the Nasdaq has moved little, the S&P 500 has decreased 0.3% and the Dow has been relatively flat. The recent surge in popularity of technological stocks has launched the Nasdaq ...
  6. Stock Analysis

    Biggest Transportation Sector Movers for July 26, 2012, Including KEX

    On a good day for the market, the Nasdaq has moved up 1.1%, the S&P 500 has risen 1.3% and the Dow has increased 1.4%. The transportation sector is a category of stocks relating to the transportation ...
  7. Fundamental Analysis

    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.
  8. Stock Analysis

    WellPoint Among Financial's Biggest Movers

    This morning's trading has marked a bad day for the market so far. The Nasdaq has declined 0.3%; the S&P 500 has fallen 0.4%; and the Dow has slipped 0.5%. The financial sector is the category ...
  9. Stock Analysis

    Semiconductors Stocks, Including KLA-Tencor, Making Big Moves on September 19, 2012

    The Nasdaq has risen 0.1%, the S&P 500 is trading up 0.2% and the Dow has moved up 0.3%, marking a bad morning for the market. The Semiconductors sector (XLK) is up 0.1%, underperforming ...
  10. Stock Analysis

    China Eastern Airlines Corp. Ltd. (ADR) and Other Transportation Stocks Making Big Moves

    So far today, the Nasdaq is trading up 0.2%, the S&P 500 has moved little and the Dow has been relatively flat. The transportation sector is a category of stocks relating to the transportation ...
RELATED FAQS
  1. 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 >>
  2. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
  3. What is the difference between book value and carrying value

    Dig deeper into the definitions of carrying value and book value, and learn to differentiate between their various financial ... Read Answer >>
  4. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  5. Who uses book value to estimate the value of a company?

    Understand the meaning of the term "book value" and how it is used by market analysts to estimate the worth or market value ... Read Answer >>
  6. What's the difference between book and market value?

    Book value is the price paid for a particular asset. This price never changes so long as you own the asset. On the other ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center