What formula represents the market to book ratio?

The market to book ratio is a financial metric that compares a company's market value to its book value. This ratio is calculated by taking the market value per share, which reflects the current trading price of the company's shares in the stock market, and dividing it by the book value per share, which represents the net asset value of the company as recorded on the balance sheet.

By using this specific formula, investors can assess how the market values the company relative to its actual book value. A market to book ratio greater than 1 typically indicates that investors expect the company to generate more value than what is reflected on the financial statements, potentially due to growth prospects or intangible assets not captured on the balance sheet. Conversely, a ratio less than 1 may suggest that the market perceives the company's assets as being overvalued or that the company is facing challenges.

Understanding this ratio is important for investment analysis, as it can influence investment decisions based on how the market is valuing a company's performance in relation to its accounting figures.