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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.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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