A new decomposition of Tobin’s q
2008 (English)In: PROCEEDINGS of the IABE-2008 Stockholm- Summer Conference: Stockholm, Sweden June 6-8, 2008 / [ed] Cheick Wagué, Detelin Elenkov, 2008, 238-230 p.Conference paper (Other academic)
The Tobin’s q of a firm is the firm’s market value divided by the replacement cost. Ideally the q therefore should be higher than 1. The actual profitability can be measured as the annual profit divided by the firm’s replacement cost. This will be denoted as E/C. The stock market’s expectations regarding the firm’s profitability can be measured as the P/E ratio, i.e. the price of the stock divided by the annual profit. If these two ratios are multiplied, we get the ratio P/C, which is identical to Tobin’s q. This indicates a simple way of analyzing the impact of the two mentioned aspects of the q. Our conclusion is that the decomposition of the firm’s Tobin’s q gives a good illustration of the impact of expectations and profitability on the q.
Place, publisher, year, edition, pages
2008. 238-230 p.
, IABE Proceedings, ISSN 1932-7498 ; 2008:1
IdentifiersURN: urn:nbn:se:sh:diva-6506OAI: oai:DiVA.org:sh-6506DiVA: diva2:401467