How to Calculate Cross Ratio

Cross Ratio Formula:

\[ \text{Cross Ratio} = \frac{\text{Market Value}}{\text{Book Value}} \]

Cross Ratio (decimal):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Cross Ratio?

Cross Ratio is a financial metric that compares the market value of an asset to its book value. It provides insight into how the market values a company's assets compared to their accounting value.

2. How Does the Calculator Work?

The calculator uses the Cross Ratio formula:

\[ \text{Cross Ratio} = \frac{\text{Market Value}}{\text{Book Value}} \]

Where:

Market Value — Current market price of the asset
Book Value — Original cost of the asset minus accumulated depreciation

Explanation: The ratio indicates whether an asset is overvalued (ratio > 1) or undervalued (ratio < 1) by the market compared to its accounting value.

3. Importance of Cross Ratio Calculation

Details: Cross Ratio is important for investors and analysts to assess whether a company's assets are properly valued in the market, which can influence investment decisions and company valuation.

4. Using the Calculator

Tips: Enter market value and book value in the same currency units. Both values must be positive numbers greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What does a Cross Ratio greater than 1 indicate?
A: A ratio greater than 1 suggests the market values the asset more than its book value, potentially indicating strong future growth prospects.

Q2: What does a Cross Ratio less than 1 indicate?
A: A ratio less than 1 suggests the market values the asset less than its book value, which might indicate concerns about the asset's future profitability.

Q3: Are there industry standards for Cross Ratio?
A: Ideal Cross Ratio values vary by industry. Technology companies often have higher ratios than manufacturing companies due to different asset structures.

Q4: How frequently should Cross Ratio be calculated?
A: It should be calculated regularly, especially when making investment decisions or during significant market changes that might affect asset valuations.

Q5: What are the limitations of Cross Ratio?
A: The ratio doesn't account for intangible assets not reflected in book value and can be influenced by market sentiment rather than fundamental value.