Tobin's Q Ratio

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Tobin's Q Ratio

A ratio of a company's market value to its total asset value. Tobin's Q ratio is based on the work of James Tobin, who suggested that a fairly priced company ought to have a price equal to its total asset value. Thus, when Tobin's Q ratio is less than one, it means that the market value of the company is less than the total asset value, indicating that it is undervalued. Likewise, when it is more than one, it indicates that the market value is higher than the total asset value and that the company might be overvalued. Tobin's Q ratio is also called simply a Q ratio.
References in periodicals archive ?
We conclude that, on average, the marginal and average Tobin's Q ratios differ for firms in the sample.
47 Table 1 Estimated Tobin's Q Ratios and Announcements by Firm Average Q is calculated as the ratio of the market value of the firm to replacement cost.
Our procedure for estimating Tobin's q ratios for each firm follows the Perfect and Wiles (1994) method:
The difference in the m/b, Tobin's q ratios, and ROA between the two groups is generally consistent with our arguments that outside blockholders monitor managers and that the existence of such institutions affects the performance of ESOP firms differently.
Although Tobin's q ratio is ideal, we can not compute the Tobin's q ratio for many cases due to incomplete data.
We find sufficient data on COMPUSTAT to calculate the m/b ratio for 212 ESOPs, leverage-controlled ROA for 111 ESOPs, and Tobin's q ratio for 119 ESOPs over a five-year period from year t - 1 to year t + 3.
We draw a similar conclusion from changes in Tobin's q ratio and ROA.