It has been a long while since we discussed financial ratios. The last post was more than 10 years ago (although it was edited in 2016). Today we hope to discuss Tobin's Q and how it can help us in our fundamental analysis. First let's define what the heck is this ratio about.
From Wikipedia:
Tobin's q (also known as 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 article "Marginal Productivity and the Macro-Economic Theories of Distribution: Comment on Samuelson and Modigliani".
It was popularized by James Tobin, a Nobel laureate who did creative and extensive work expenditure decisions, employment, production and prices in finance. He famously stated:
1) the numerator, is the market valuation: the going price in the market for exchanging existing assets.
2) the denominator, is the...