Quick Definition

The Q Ratio, or Tobin's Q, is a financial metric that compares the market value of a company's assets to their replacement cost.

Formula

Examples

• 1A company with a Q Ratio greater than 1 suggests that its market value is higher than the cost to replace its assets, indicating potential overvaluation.
• 2A Q Ratio less than 1 might indicate that a company is undervalued, as its assets can be replaced for less than their current market value.
• 3Investors use the Q Ratio to assess whether the stock market is overvalued or undervalued by comparing the aggregate Q Ratio of all publicly traded stocks.
• 4Economic analysts might look at changes in the Q Ratio over time to gauge investment trends and economic cycles.

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