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.

VIDEO

Loading the player...
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. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  5. Stockholders' Equity

    The portion of the balance sheet that represents the capital ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
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. Forex Education

    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!
  3. Budgeting

    Do I Need A Personal Accountant?

    You know you need to keep your personal finances better organized. Should you hire professional help, and if so what kind?
  4. Investing Basics

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  5. Investing Basics

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  6. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  7. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  8. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  9. Investing Basics

    What is a Mid-Cap?

    Mid-cap companies are those with a market capitalization between two and $10 billion.
  10. Fundamental Analysis

    What's a Drawdown?

    A drawdown is usually expressed as a percentage change between the peak price and the low price (trough) of an investment.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center