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A new decomposition of Tobin’s q
Södertörn University College, School of Business Studies, Business studies.
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)
Abstract [en]

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
National Category
Business Administration
URN: urn:nbn:se:sh:diva-6506OAI: diva2:401467
Available from: 2011-03-02 Created: 2011-03-02 Last updated: 2011-03-02Bibliographically approved

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