Book to Bill Ratio – Definition

Cite this article as:"Book to Bill Ratio – Definition," in The Business Professor, updated March 5, 2019, last accessed October 21, 2020,


Book-to-Bill Ratio Definition

The Book to Bill is the ratio of received orders to the units shipped and billed for a particular period, generally monthly or quarterly. The ratio is commonly used by semiconductor equipment manufacturers in the technology industry. Book-to-bill ratio is closely watched by analysts and investors as a performance metrics and outlook for companies and the technology sector in general. While a ratio above 1 implies strong demand, a ratio below 1 implies weaker demand.

A Little More on Book-to-Bill Ratio

The book-to-bill ratio is commonly used by volatile industries to measure supply and demand by comparing the number of orders coming in versus the orders going out. When a company fulfills orders as they come in, the book-to-bill ratio is one. An example is a company making 500 orders then shipping and billing the same number (500). This means that the booked and billed orders have a ratio of 500/500 which is equal to 1. Through the ratio, a business is able to understand how quickly it can fulfill the demand for its products. Additionally, the ratio shows the strengths of an industry including aerospace and defense manufacturing.

In the case that a company has a ratio below 1, the supply may be higher than demand. For example, when a company books 500 orders and then ships and bills about 610 orders, then the ratio will be 0.82 (500/610). This means that for every dollar billed, the company only booked $0.82.

Example of a Book-to-Bill Ratio

In June 2016, semiconductor companies in the US and Canada received orders worth over $1.71 billion for 3 consecutive months with a book-to-bill ratio of 1. This means that for every $100 orders received each month, $100 worth of orders is billed. In May 2016, the companies made a booking worth $1.75 billion; this made booking for that month to be profitable by 2.1% than the average booking made between April and June.

References for Book to Bill

Academic Research on Book to Bill

  • Timely Industry Information as an Assurance Service: Evidence on the Information Content of the BooktoBill Ratio, Fargher, N. L., Gorman, L. R., & Wilkins, M. S. (1998). Auditing: A Journal of Practice & Theory, 17(Suppl.), 109. This article explores the assurance services industry, illustrating how it applies book-to-bill ratios to have a balanced supply-demand curve. Using the Semiconductor Industry Association as an example, the article describes how the monthly output involves the analysis of new orders through book-to-bill ratios. The authors engage in the evaluation of the correlation between stock prices and book-to-bill disclosures and conclude that the index is relevant for firm valuation.
  • Organizational growth: Linking founding team, strategy, environment, and growth among US semiconductor ventures, 1978-1988, Eisenhardt, K. M., & Schoonhoven, C. B. (1990). Administrative science quarterly, 504-529. This study analyses the growth of organizations that engage in technology innovations. The authors relate the top-management team characteristics, the environment, and strategy to the growth of sales of new firms in the semi-conductor industry. Based on the findings, there is a significant interaction effect of the top-management team and the market stage on the growth of the firm. The findings indicate that there is a strong linkage between chaos-theory and positive-feedback models.
  • Fundamental information analysis, Lev, B., & Thiagarajan, S. R. (1993). Journal of Accounting research, 190-215. This article defines the concept of fundamental analysis and illustrates its role in the valuation of corporate securities. According to the authors, such analysis entails the identification of a set of financial variables by estimating the incremental value-relevance of the variables over earning.
  • Virtual integration and profitability: some evidence from Taiwan’s IC industry, Chu, P. Y., Teng, M. J., Huang, C. H., & Lin, H. S. (2005). International Journal of Technology Management, 29(1-2), 152-172. This study examines the strategy-performance impact of strategic group membership and investigates the relationship between the profitability of Taiwan’s Integrated Circuit (IC) industry firms, the firms’ business strategies, and industrial business cycles. The findings reveal that both profitability and variation of firms are affected by the key business models implemented by the firms. This implies that the effectiveness of virtual integration to increase the return on assets and return on equity of a firm can be witnesses in any stage of a business cycle.
  • Electronics industry drivers of intermediation and disintermediation, Shunk, D. L., Carter, J. R., Hovis, J., & Talwar, A. (2007). International Journal of Physical Distribution & Logistics Management, 37(3), 248-261. This article addresses the drivers of intermediation and disintermediation in the electronic industry. Supply chain intermediary should achieve “operational excellence” in order to remain competitive in a particular electronic industry field. The authors also assert that intermediary services enhance value compared to material flow, individual cash flow, and knowledge flow alone.
  • Managerial actions, stock returns, and earnings: the case of business‐to‐business internet firms, Rajgopal, S., Venkatachalam, M., & Kotha, S. (2002). Journal of Accounting Research, 40(2), 529-556. This study investigates the valuation effects of managerial actions performed by 57 B2B internet firms. The managerial actions of the firms were classified into 9 categories including acquisition of key customers, introduction of new products and services, marketing and promotion, actions to address stakeholder concerns, technology announcement, marketing, and distribution alliances, acquisition completion, internationalization of markets, actions involving management teams, and organizational changes. Based on these variables, the study finds that the announcement of managerial actions result in increased stock price volatility since the public is able to get value-relevant information on the stock market.
  • The eyeballs have it: Searching for the value in Internet stocks, Trueman, B., Wong, M. F., & Zhang, X. J. (2000). Journal of Accounting Research, 137-162. This article highlights the role of accounting information and internet usage in market valuation among internet firms. The authors reveal that there is no association between net income and market prices. However, they find that decomposing net income results in increased association between gross profits and prices.
  • Quantifying the relative improvements of redesign strategies in a PC supply chain, Berry, D., & Naim, M. M. (1996). International Journal of Production Economics, 46, 181-196.  This article discusses the developed simulation models that describe the implications of supply chain redesign strategies by a personal computer manufacturer in Europe. The key strategies adopted from the real world and replicated in the models include: just-in-time philosophy, strategic supplier sourcing policy, development of global materials planning system, and by-passing the distribution network. Based on the simulations, the authors reveal that each of the redesign strategies result in dynamic performance improvement.
  • Discussion of “Back to Basics: Forecasting the Revenues of Internet Firms” and “A Rude Awakening: Internet Shakeout in 2000”, Penman, S. H. (2001). Review of Accounting Studies, 6(2-3), 361-364. This paper illustrates how seasoned firms benefit from firm valuation since the firms require financial statement analysis on a daily basis. Penman (2001) asserts that financial statements reveal a lot of information, and may be an indication of a firm’s future “steady state.” However, the further a firm is from steady stat, financial statements cannot help in the valuation, thereby demanding the need for other non-accounting information. The article further investigates the non-accounting information needed to conduct firm valuation.
  • Analyzing and forecasting business cycles in a small open economy, Chow, H. K., & Choy, K. M. (2009). OECD Journal: Journal of Business Cycle Measurement and Analysis, 2009(1), 19-41. This study analyses the business cycles of an open economy by using a dynamic factor model within Singapore’s macroeconomic variables and economic indicators. The findings of the study reveal that there are 4 factors that capture a large proportion of the co-variation including world, regional, electronics, and domestic economic cycles. The authors also use the dynamic factor model to explain the real economic activity fluctuations and price inflation.
  • Are auditors sensitive enough to fraud?, Makkawi, B., & Schick, A. (2003). Managerial Auditing Journal, 18(6/7), 591-598. This study assesses the impact of increased likelihood of fraud risk on auditors’ decision making process in regard to audit programs. A survey involving a big 5CPA firm and 48 auditors was conducted to identify the audit procedures that are put in place to respond to the increased likelihood of material misstatements as a result of fraud.

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