How is equity Q calculated?

Equity Q is calculated by dividing the company's equity market capitalization by its net worth measured at replacement cost. This approach helps assess whether a company's stock is overvalued or undervalued relative to its true underlying value.

By using the equity market cap, investors get a real-time assessment of how the market values the company. The replacement cost reflects what it would cost to replace the company's assets at current prices, providing a basis for determining the company's intrinsic worth. This ratio is particularly useful in situations where a company has a significant amount of tangible assets, as it allows for a more accurate comparison of market valuation versus economic valuation.

This calculation is significant because it provides insight into investor sentiment and can indicate whether a company is being traded at a price that reflects its true economic value. A high Equity Q might suggest that the market is pricing the company high relative to its fundamental worth, while a low value may indicate that the stock is undervalued.