what does the book to market ratio tell you 
if the market value of a company is trading higher than its book value per share it is considered to be overvalued if the book value is higher than the market value analysts consider the company to be undervalued the book to market ratio is used to compare a company s net asset value or book value to its current or market value the book value of a firm is its historical cost or accounting value calculated from the company s balance sheet book value can be calculated by subtracting total liabilities preferred shares and intangible assets from the total assets of a company in effect the book value represents how much a company would have left in assets if it went out of business today some analysts use the total shareholders equity figure on the balance sheet as the book value the market value of a publicly traded company is determined by calculating its market capitalization which is simply the total number of shares outstanding multiplied by the current share price 1 the market value is the price that investors are willing to pay to acquire or sell the stock in the secondary markets since it is determined by supply and demand in the market it does not always represent the actual value of a firm 