Q = Market capitalization of the company / Replacement cost of assets. This is just a theoretical formula, but in practice the replacement cost is very difficult to calculate, so people usually use the net assets of the company instead, that is, calculate Q = Market Capitalization / Net Assets.
Another formula can be found online: Q = (market value of outstanding shares + market value of preferred shares + liabilities)/book value of total assets, too.
Expanded:
The key to Q is not what the exact figure is, but just to see who is more valuable of the two types of investments, capital and physical.Q>1 means that the return on investing in financial assets is not as good as investing in physical assets, and this is when one tends to cut back on equity holdings.Q<1 means that the market capitalization is less than the replacement cost, and the firm can acquire productive assets by buying stock or acquiring another company, which is cheaper than simply purchasing new equipment.
The problem of estimation of TobinQ value is a key issue in the application of TobinQ theory in the field of empirical analysis of finance and finance, because the use of different methods of estimation of TobinQ value will directly affect the effect of its empirical analysis as an explanatory variable.
To this end, the analysis points out that there are two major difficulties in the estimation of TobinQ, namely, the estimation of the market value of long-term liabilities and the estimation of the replacement cost of the company's assets, and then focuses on these two difficult problems to comprehensively sort out and review the estimation of the TobinQ value from the perspective of theoretical estimation methods and approximate estimation methods. Finally, it is pointed out that the application of TobinQ value is mainly the measurement of economic rent and company performance.