For listed stock, is it similiar to price to book concept?
If we assume book value equal to replacement cost, then both raio(P/B and Tobin’s q) are the same? Thanks.
No, they’re not nearly the same.
Equity Q is closer to P/B but still widly different.
Thanks. I revisit the curriculum and found the BB already has some explanation!
Book value in the price-to-book ratio reflects the value of equity that is reported on the company’s balance sheet. The denominator of equity q reflects the difference between the replacement cost of assets and the market value of liabilities. Most financial reporting standards require the use of acquisition cost as a measure of asset value. Thus, the book value of assets is typically less than their replacement cost , and this is particularly true during periods of rising prices. - BB
Keep in mind there is no “p” in tobins-q so the relationship to P/B stops at B
Sorry, what do you mean no “p”?
Numerator
Tobin’s q: market price of asset
Equity q: market price of equity
Should have price there.