DEFINITION of 'Book To Ship Ratio'

The book to ship ratio measures the ratio of orders being shipped for immediate delivery, and therefore billed, to orders booked for future delivery. This ratio can be used to help measure a company's efficiency and can be used to identify potential problems in internal and external supply chains.

BREAKING DOWN 'Book To Ship Ratio'

If the book to ship ratio is greater than one, it indicates that the company has not sent out all orders. This could indicate a shortage or backorder of needed supplies. If it is one, the company is directly on time; if it is below one, the company has excess inventory on hand. For example, if incoming orders for the quarter were $50 million and shipments for the quarter were $100 million, the book to ship ratio would be 50%. If this company is making a simple product like widgets, which have quick turnaround times from order to shipment, then this low book-to-ship ratio could be indicative of problems in either manufacturing or shipping.

The book-to-ship ratio is the inverse of the related ratio, book-to-bill. Each value can be of particular importance for certain industries. For instance, the book-to-ship ratio (or book-to-bill) is released monthly for the semiconductor industry. Analysts and strategists like this measure because it offers a clear and effective indication of whether orders for chips are rising or falling and at what price. Long and short-term estimates can then be derived for chip demand, which can drive stock prices for semiconductor and technology stocks alike.

These estimates can further feed into economic outlooks and trade policymaking. The book-to-ship ratio is considered an important leading indicator of demand trends. Leading indicators are indicators that usually, but not always, change before the economy as a whole change. They are therefore useful as short-term predictors of the economy; they also have longer-term secular predictive value as well.

  1. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained ...
  2. Key Ratio

    Key ratios are the main mathematical ratios that illustrate and ...
  3. Order Book

    An order book is an electronic list of buy and sell orders for ...
  4. Cash Asset Ratio

    The cash asset ratio is the current value of marketable securities ...
  5. Book Value

    An asset's book value is equal to its carrying value on the balance ...
  6. The Jones Act

    The Jones Act is a federal law that regulates maritime commerce ...
Related Articles
  1. Investing

    Major Companies That Lose Money On Shipping (AMZN)

    We look at some of the big companies in the home delivery business that have high shipping costs and how they mitigate this.
  2. Investing

    Sysco and Other Big Movers In Services

    The market has been slipping so far today. The Nasdaq has fallen 0.3%; the S&P 500 has fallen 0.4%; and the Dow has declined 0.5%. The Services sector (IYC) is currently lagging behind the overall ...
  3. Investing

    5 must-have metrics for value investors

    In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market.
  4. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  5. Investing

    Are Shipping Stocks Due For A Rally?

    Several bullish catalysts are lining up in favor of shipping companies. Their current cheapness may not last for long, though, so the time to buy is now.
  6. Investing

    The Price To Earnings Ratio Explained

    The price to earnings ratio is one of the most important ratios in investing. Find out how it is calculated, how it can be used and what it tells investors about a particular stock.
  7. 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.
  8. Investing

    Key Financial Ratios for Retail Companies

    Using the following liquidity, profitability and debt ratios, an investor can gather deeper knowledge of a retail company's short-term and long-term outlook.
  9. Financial Advisor

    The Debt To Equity Ratio

    The debt to equity ratio identifies companies that are highly leveraged and therefore a higher risk for investors. Find out how this ratio is calculated and how you can use it to evaluate a stock.
  1. How can a company quickly increase its liquidity ratio?

    Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >>
  2. What is considered a good PEG (price to earnings growth) ratio?

    Learn about the price/earnings to growth (PEG) ratio and understand what investors and market analysts consider a good ratio ... Read Answer >>
  3. If a company has a high debt to capital ratio, what else should I look at before ...

    Learn about some of the financial leverage and profitability ratios that investors can analyze to supplement examining the ... Read Answer >>
  4. What does a high-times interest earned ratio signify for a company's future?

    Learn how the times interest earned ratio affects the perception of solvency of a company, and what a high ratio can mean ... Read Answer >>
  5. Is there a downside to having a high liquidity ratio?

    Find out why it might be disadvantageous for a company to have liquidity ratios that are too high, and learn how to find ... Read Answer >>
Trading Center