{"id":31446,"date":"2024-02-28T15:52:07","date_gmt":"2024-02-28T15:52:07","guid":{"rendered":"https:\/\/swoopfunding.com\/ie\/uk\/business-glossary\/book-to-market-ratio\/"},"modified":"2025-04-24T14:31:12","modified_gmt":"2025-04-24T14:31:12","slug":"book-to-market-ratio","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/ie\/business-glossary\/book-to-market-ratio\/","title":{"rendered":"Book-to-market ratio"},"content":{"rendered":"\n

Definition<\/strong><\/h3>\n\n\n\n

The book-to-market (B\/M) ratio is a financial metric used to evaluate the relative valuation of a company’s stock by comparing its book value to its market value. <\/p>\n\n\n\n

What is a book-to-market ratio?<\/strong><\/h3>\n\n\n\n

The book-to-market ratio provides insight into the valuation of a company’s stock<\/a> relative to its accounting value. A high book-to-market ratio suggests that the company’s stock is relatively undervalued by the market compared to its book value, while a low ratio indicates that the stock may be overvalued.<\/p>\n\n\n\n

The book-to-market ratio is calculated by dividing a company’s book value per share by its market value<\/a> per share. The formula is as follows:<\/p>\n\n\n\n

B\/M ratio = Book value per share \/ Market value per share<\/p>\n\n\n\n

The book value per share is typically derived from the company’s balance sheet<\/a> by dividing its total shareholders’ equity<\/a> by the number of outstanding shares. The market value per share is obtained by multiplying the current market price per share by the number of outstanding shares.<\/p>\n\n\n\n

While the book-to-market ratio provides valuable insights into a company’s valuation<\/a>, it has some limitations. For example, it does not take into account future earnings potential, growth prospects, or qualitative factors that may impact a company’s stock price.\u00a0<\/p>\n\n\n\n

Example of a book-to-market ratio<\/strong><\/h3>\n\n\n\n

Let’s consider a company, ABC Inc., which has the following financial information:<\/p>\n\n\n\n

    \n
  • Book value per share: \u20ac20<\/li>\n\n\n\n
  • Market value per share: \u20ac30<\/li>\n<\/ul>\n\n\n\n

    To calculate the book-to-market ratio for ABC Inc., we use the formula from above:<\/p>\n\n\n\n

    B\/M ratio = \u20ac20 \/ \u20ac30 = 0.67<\/p>\n\n\n\n

    In this example, the book-to-market ratio for ABC Inc. is 0.67. This means that for every euro of book value, the market values the company at \u20ac0.67. A ratio less than 1 indicates that the market values the company lower than its book value, suggesting that the stock may be seen as undervalued by the market compared to its accounting value.<\/p>\n","protected":false},"author":1,"template":"","class_list":["post-31446","business-glossary","type-business-glossary","status-publish","hentry"],"acf":[],"featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","image_blog":"","image_blog_full":"","image_podcast":"","image_banking":"","image_blog_internal":"","image_blog_medium":"","image_single_banking":""},"post_excerpt_stackable_v2":"

    Definition The book-to-market (B\/M) ratio is a financial metric used to evaluate the relative valuation of a company’s stock by comparing its book value to its market value.  What is a book-to-market ratio? The book-to-market ratio provides insight into the valuation of a company’s stock relative to its accounting value. A high book-to-market ratio suggests that the company’s stock is relatively undervalued by the market compared to its book value, while a low ratio indicates that the stock may be overvalued. The book-to-market ratio is calculated by dividing a company’s book value per share by its market value per share.…<\/p>\n","category_list_v2":"","author_info_v2":{"name":"root","url":"https:\/\/swoopfunding.com\/ie\/author\/root\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/ie\/wp-json\/wp\/v2\/business-glossary\/31446","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/ie\/wp-json\/wp\/v2\/business-glossary"}],"about":[{"href":"https:\/\/swoopfunding.com\/ie\/wp-json\/wp\/v2\/types\/business-glossary"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ie\/wp-json\/wp\/v2\/users\/1"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/ie\/wp-json\/wp\/v2\/media?parent=31446"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}