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Book-to-Bill Ratio

Book-to-Bill Ratio

What Is the Book-to-Bill Ratio?

A book-to-bill ratio is the ratio of orders received to units sent and billed for a predefined period, generally a month or quarter. It is a widely involved measurement in the technology industry, explicitly 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 over one suggests a bigger number of orders were received than filled, showing strong demand, while a ratio below one infers more fragile demand.

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

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

Understanding the Book-to-Bill Ratio

A book-to-bill ratio is regularly utilized for measuring supply and demand in unpredictable enterprises like the technology sector. The ratio measures the number of orders coming in compared to the number of orders going out. A company satisfying orders surprisingly has a book-to-bill ratio of 1. For instance, Company A books 500 orders for parts and afterward ships and bills every one of the 500 orders. The booked and billed orders have a ratio of one, or 500/500.

The book-to-bill ratio uncovers how rapidly a business satisfies the demand for its products. The ratio likewise shows the strength of a sector, for example, aviation or defense manufacturing. It might likewise be utilized while deciding if to purchase stock in a company.

On the off chance that a business has a ratio of short of what one, there might be more supply than demand. For instance, Company B books 500 orders for parts, and afterward ships and bills 610 orders, including a few orders from the previous month. The booked and billed orders have a ratio of 0.82. For each dollar of orders, the company billed, just $0.82 of orders were booked that month.

Be that as it may, assuming that the ratio is greater than one, there might be even more a demand rather than can be productively supplied. For instance, Company C books 500 orders for parts, and afterward ships and bills 375 orders. The book-to-bill ratio is 1.3, or 500/375. Conversely, a business with a ratio of one is meeting supply and demand sufficiently by transportation and billing orders as they are received.

An Example of the Book-to-Bill Ratio

As a historical model, in June of 2016, companies making semiconductor pieces in the United States and Canada received orders averaging $1.71 billion north of three successive months. The book-to-bill ratio was 1. In this way, for each $100 in orders received for the month, $100 of the product was billed. The companies booked $1.75 billion in orders during May 2016, making that month 2.1% more productive than the average bookings from April through June of that year.