Market to Book Ratio Calculator

Market to book value calculator makes it easy to calculate the ratio using the variable – book value, share price & no. of outstanding shares of the firm.

Market to Book Ratio

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

or

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.

Calculator

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.

Example

Assume a corporation having 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

Interpretation

A theoretical interpretation of market to book ratio 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.

Cautions

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.

Last updated on : November 4th, 2018

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