Book-to-Market Ratio (B/M)
factor.formula
The book-to-market ratio is the ratio of a company's book value to its market value. Book value usually refers to the total amount of shareholders' equity, which represents the company's net asset value in accounting. Market value represents the market's assessment of the company's overall value. The higher the ratio, the lower the market's value to the company, and the stock may be undervalued; conversely, the lower the ratio, the higher the market's value to the company, and the stock may be overvalued.
factor.explanation
The book-to-market ratio is an important factor commonly used in value investing. The basic logic is that if a company's market value is much lower than its book value, then the company's stock may be underestimated by the market and have investment value. On the contrary, if the market value is much higher than the book value, there may be a risk of overvaluation. It should be noted that the reasonable range of the book-to-market ratio may vary greatly for companies in different industries. Therefore, when applying this factor to make investment decisions, it is necessary to consider industry factors and combine other financial indicators for comprehensive analysis.