What Is the Q Ratio or Tobin's Q?

The Q ratio, commonly known as Tobin’s Q, is calculated by dividing a company’s market value by the replacement cost of its assets. As a result, when market value equals replacement cost, we have reached equilibrium. The Q Ratio describes the connection between market valuation and intrinsic value at its most basic level. To put it another way, it’s a method of determining if a company or market is overpriced or undervalued.