Book-To-Market Ratio

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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

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.

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RELATED FAQS
  1. Is there a way to include intangible assets in book-to-market ratio calculations?

    The book-to-market ratio is used in fundamental analysis to identify whether a company's securities are overvalued or undervalued. ... Read Full Answer >>
  2. What are the alternatives to book-to-market ratio analysis?

    The book-to-market ratio is one of many company valuation methods. Alternatives include the price-to-earnings (P/E) ratio, ... Read Full Answer >>
  3. What is the difference between book-to-market ratio and cash flow to price?

    The book-to-market ratio compares the market capitalization to the book value of a company. This metric indicates whether ... Read Full Answer >>
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