Q Ratio Concept
Q Ratio, developed in the 60’s by the economist James Tobin, is a financial indicator used to analyze the companies’ performance in the shareholder perspective and to analyze planning and investment decisions in different company’s business units.
This indicator is defined as the market value of the company’s fixed assets shares divided by the cost of the replacement of these assets. If the shares’ market value is higher than the replacement cost, the Q Ratio value is superior to 1, which means that the market considers the company able to create a value with its assets that overcome its purchasing value. In this case, the company has incentives to invest in more assets since the shares market will valorize more these new assets than its cost for the company.
