Book-To-Market Ratio


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.


Book-To-Market Ratio


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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.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Outstanding Shares

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

    The price an asset would fetch in the marketplace. Market value ...
  4. Stockholders' Equity

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

    1. The value at which an asset is carried on a balance sheet. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
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  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 >>
  4. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  5. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  6. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>

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