Book-to-Market Ratio

Book-to-Market Ratio

A ratio of a publicly-traded company's book value to its market value. That is, the BTM is a comparison of a company's net asset value per share to its share price. This is a useful tool to help determine how the market prices a company relative to its actual worth. A ratio greater than one indicates an undervalued company, while a ratio less than one means a company is overvalued. Value managers seek out companies with high BTMs for their portfolios.
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Stattman (1980) and Rosenberg, Reid, and Lanstein (1985) are the pioneer researchers who document the relationship between expected returns and book-to-market ratio.
Book-to-Market Ratio is the ratio of the book value of equity to the market value of equity.
We conclude that a model, which incorporates market factor, firm size, book-to-market ratio, earnings-to-price ratio and liquidity, provides a good description of the variation in stock returns compared to the competing models.
al (2004) find that US firms opting for rights offers tend to have a higher book-to-market ratio, a higher return on assets, a higher current ratio, and a lower level of debt.
Thus, financial companies were excluded from the sample, because, according to Fama and French (1992), their high indebtedness can distort the book-to-market ratio, and it does not mean the same as non-financial companies' high indebtedness.
Fama and French (1992) confirmed that size and book-to-market ratio could capture the cross-sectional stock returns together with [beta], leverage, and earnings-price ratios.
16023), co-authors Jules van Binsbergen, John Graham, and Jie Yang use a financial model to estimate the marginal cost curve for corporate debt, including in their model such financial characteristics as asset collateral, firm size, book-to-market ratio, asset tangibility, cash flow, and dividend payouts.
Our regression model includes variables like, whether stock is in the option category or not, the market capitalisation of the firm, book-to-market ratio, average trading volume, promoters' stock holdings and total institutional holdings.
the S&P 500), an equally weighted market index, a portfolio with the same size and a portfolio with the same size and book-to-market ratio.
However, the book-to-market ratio (BOOKMKT) of our sample firms is significantly higher than the median book-to-market ratio of the industry suggesting pro forma firms are relatively undervalued.
B/M = beginning of the year book-to-market ratio (9704); book value is measured as total common equity; market value is the close price multiplied by the number of common shares outstanding; observations with negative book-to-market ratio are deleted;