Tobin's q Ratio

q Ratio Signals ‘Horrific’ Market Bottom, CLSA Says
Today, Big talk about q Ratio that The World market and US Market is bottom
Bloomberg News about q ratio

What is q Ratio
Tobin's q is a ratio comparing the value of the stocks of a company listed in the financial market with the value of a company's equity book value. The ratio was developed by James Tobin (Tobin 1969). It is calculated by dividing the market value of a company by the replacement value of the book equity:

Tobin's q = (Equity Market Value + Liabilities Book Value)/(Equity Book Value + Liabilities Book Value)

Another use for q is to determine the valuation of the market as a whole. The formula for this is:

q =value of stock market / corporate net worth

• If the market value reflected solely the recorded assets of a company, Tobin's q would be 1.0.
• If Tobin's q is greater than 1.0, then the market value is greater than the value of the company's recorded assets. This suggests that the market value reflects some unmeasured or unrecorded assets of the company. High Tobin's q values encourage companies to invest more in capital because they are "worth" more than the price they paid for them.

q = Market value of installed capital / Replacement cost of capital

• if Tobin's q is less than 1, the market value is less than the recorded value of the assets of the company. This suggests that the market may be undervaluing the company.

Tobin's discoveries show us that movements in stock prices will be reflected in changes in consumption and investment. Although empirical evidence reveals that his discoveries are not as tight as one would have thought. This is largely because firms do not blindly base investment decisions on movements in the stock price rather they examine the present value of expected profits and future interest rates.
Credit : Wikipedia
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My Opinions
I found q ration of World Market and US Market on www.marketoracle.co.uk that show bottom nearly 1976.

More Undervalue have to beware take over with low price from out side. Now has more big fund out of US buy property and more cheap asset in US. But volume not too much. Why?? This time is chance to collect cheap asset but Firm in us cannot raise fund because all around the world no money. I don't think so.. Why Toyota don't buy GM..

I think US enterprise have more problem that Obama send signal about Ethic...that very correct.

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