what is the q ratio or tobin s q 
the q ratio also known as tobin s q measures the relationship between market valuation and intrinsic value in other words it estimates whether a business or market is overvalued or undervalued the q ratio is calculated by dividing the market value of a company by its assets replacement cost thus equilibrium is when market value equals replacement cost formula and calculation of the q ratiothe q ratio is calculated as the market value of a company divided by the replacement value of the firm s assets since the replacement cost of total assets is difficult to estimate another version of the formula is often used by analysts to estimate tobin s q ratio it is as follows often the assumption is made the market value of liabilities and the book value of a company s liabilities are equivalent since market value typically does not account for a firm s liabilities this provides a simplified version of the tobin s q ratio as the following 