Book to Bill Ratio
Posted by Dylan Wan on February 15, 2007
Book to Bill ratio is the ratio of orders booked for future delivery to orders being shiped immediately, and therefore billed.
Book to Bill ratio is sometimes regarded as a growth potential index. A ratio of one means that the company is busy and selling the product at a continuous rate but not necessary growing. A ratio of less then one indicates a potential slowdown in business (bad news). A ratio of greater then one could indicate an accelerate growth.
A high Book to Bill ratio for a manufactoring company means that their demand and backlog are growing, the the company was manufactoring at a full capacity, they may be piling up inventory at a fast pace, and the lead time will likely increase. (risky)
The Book to Bill ratio may be calculated based on the current period (ex. up to the past three month- moving average) bookings divided by the billings. It can be measured at different levels – project, product, company, or industry wide, cross companies.
It is a very effective index for companies that require advanced orders from customers and concentrating on a single class of products.
For example, SEMI (Semiconductor Equipment and Materials International) reports the Book to Bill ratio for the business activities of North American semiconductor equipment industry. The release of the book to bill ratio can have a major impact on the stock price of semiconductor stocks.