Tobin's Q (approximate)

What is Tobin's Q?

Tobin's Q-ratio is the ratio of the market value of a company's assets (computed as the sum of the market value of its debt and equity securities) to the replacement value of its assets. 

Formula:

Tobin's Q = Market value / Total assets 

What does Tobin’s Q mean?

A properly-valued company would usually have a Q-ratio of 1.0. A Q-ratio less than 1.0 would signify a bargain, since it implies that all of a company's securities could be purchased in the marketplace for less than the value of the company's real net assets. However, Q-ratios greater than 1.0 do not necessarily mean that a company's securities are overvalued; the value of a company depends as much upon how management uses its assets to create value as it does on the value of those assets in liquidation.

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