Tobin's q (or the q ratio, and Kaldor's v), is the ratio between a physical asset's market value and its replacement value. It was first introduced by Nicholas Kaldor in 1966 in his paper: Marginal Productivity and the Macro-Economic Theories of Distribution: Comment on Samuelson and Modigliani. It was popularised a decade later by James Tobin, who in 1970, described its two quantities as: Measurement Single company Although it is not the direct equivalent of Tobin's q, it has become common practice in the finance literature to calculate the ratio by comparing the market value of a company's equity and liabilities with its corresponding book values, as the replacement values of a company's assets is hard to estimate: Tobin's q = It is also common practice to assume equivalence of the liabilities market and book value, yielding: Tobin's q = . Even if market and book value of liabilities are assumed to be equal, this is not equal to the "Market to Book Ratio" or "Price to Book Ratio", used in financial analysis. The latter ratio is only calculated for equity values: Market to Book Ratio= . Financial analysis also often uses the inverse of this ratio, the "Book to Market Ratio", i.e. Book to Market Ratio= For stock-listed companies, the market value of equity or market capitalization is often quoted in financial databases. It can be calculated for a specific point in time by . Aggregate corporations Another use for q is to determine the valuation of the whole market in ratio to the aggregate corporate assets. The formula for this is: The following graph is an example of Tobin's q for all U.S. corporations. The line shows the ratio of the US stock market value to US net assets at replacement cost since 1900. Effect on capital investment 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. If a company's stock price (which is a measure of the company's capital market value) is $2 and the price of the capital in