How to Calculate Book-to-Market Ratio

Book-To-Market Ratio is a financial ratio used to measure the value of a company by comparing the book value of a company to its market value. If the ratio is more than 1 then the stock is considered undervalued; if it is less than 1, the stock is considered overvalued.

Formula:
Book-To-Market Ratio = Book value of a company / Market value of a company

Note: The market value of a company is the total number of shares outstanding multiplied by the current price of the shares. The book value of a company is the amount of stockholders' equity, as measured by its total assets minus total liabilities.

Example 1:
If the stock for Company ABC is selling at $20 a share and its book value per share is $35, then the Book-To-Market = 35 / 20 = 1.75

Example 2:
Robert Electric plc has $600,000 market capitalization while the book value is $450,000, then the  Book-To-Market = Book value / Market capitalization = 450,000 / 600,000 = 0.75

* Next: Price to Sales Ratio Formula & Example
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