# Book-to-Bill Ratio Definition

## What Is the Book-to-Bill Ratio?

A book-to-bill ratio is the ratio of orders received to units shipped and billed for a specified period, generally a month or quarter. It is a widely used metric in the technology industryspecifically in the semiconductor equipment sector.

Investors and analysts closely watch this ratio for an indication of the performance and outlook for individual companies and the technology sector as a whole. A ratio above one implies more orders were received than filled, indicating strong demand, while a ratio below one implies weaker demand.

## The Formula for the Book-to-Bill Ratio Is:

﻿



Book to Bill

=

Orders Shipped

\text{Book to Bill} = \frac{\text{Orders Received}}{\text{Orders Shipped}}

## Understanding the Book-to-Bill Ratio

A book-to-bill ratio is typically used for measuring supply and demand in volatile industries such as the technology sector. The ratio measures the number of orders coming in compared to the number of orders going out. A company fulfilling orders as they come in has a book-to-bill ratio of 1. For example, Company A books 500 orders for parts and then ships and bills all 500 orders. The booked and billed orders have a ratio of one, or 500/500.

The book-to-bill ratio reveals how quickly a business fulfills the demand for its products. The ratio also shows the strength of a sector, such as aerospace or defense manufacturing. It may also be used when determining whether to purchase stock in a company.

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