Market to book value calculator makes it easy to calculate the ratio using the variable – book value, share price & the number of outstanding shares of the firm.
Market to Book Ratio
The market to book value ratio is a ratio that simply compares the market value to book value. It essentially checks how many times of book value the investors are valuing the business.
Formula for Calculating Market to Book Ratio
The formula for calculating market to book ratio is a very simple comparison of market value and book value
Market to Book Ratio = Market Capitalization / Book Value
Market to Book Ratio = Market Price per Share / Book Value per Share
About the Calculator / Features
This calculator readily calculates the market-to-book ratio when the user enters information such as market price, no. of outstanding shares, and book values.
How to Calculate using Calculator
You just need to enter the following fields in the calculator.
Share Price of the Firm
The latest price of the shares of the firm is easily available from stock exchange websites. It is advisable to check for any sudden big fluctuation in the price.
No. of Outstanding Shares
This can be availed from the annual financial report of the corporation.
Book Value of the Firm
This can be calculated from the balance sheet of the corporation. There are two ways to calculate it. First, take the total of the asset side of the balance sheet and deduct the liabilities, preference shares capital, and intangible assets. Second, simply take equity shareholder’s capital which includes equity capital and reserves, and surplus.
Assume a corporation has a share price of $5 in the stock market. It has 2,000,000 outstanding shares. As per the balance sheet, the book value is, say, $4,000,000.
Market to Book Value Ratio = 5*2,000,000 / 4,000,000 = 2.5
A theoretical interpretation of a market-to-book ratio of less than 1 suggests undervalued stock, whereas greater than 1 suggests overvaluation. We can’t take it as a stiff benchmark. For a detailed interpretation, we suggest reading Market to Book Ratio Interpretation.
Since the book values are historical purchase values reflected in the books of the firm, they may be way different from the real fair market values of their assets.