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 ?
Tobin Q ratio is measured as the sum of market capitalization of equity, book value of preferred shares, book value of long term debt divided by book value of total assets.
On the basis of Tobin q ratio, TCS is the most valuable company followed by Infosys, Wipro and Satyam respectively.
In the model the value of the firm is Tobin q ratio. Return on investment, fixed asset turnover, size, capital structure, sales growth rate and asset growth rate are the independent variables.