# Book-to-Bill Ratio: Definition, How It’s Calculated, and Example

![Book-to-Bill Ratio](https://www.investopedia.com/thmb/iopkJn98pK-rsKU0TDoXEdgbJHY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Booktobill_3-2_final-ebcf71edf51748b3b94e403f7ad87fa2.png)

*— Michela Buttignol / Investopedia*

> **Definition**
>
> The book-to-bill ratio is a key metric that compares orders received to units shipped and billed, often used in the technology sector, particularly for semiconductors. This ratio indicates market demand strength—values above 1 suggest high demand, while values below 1 may reflect weaker demand. Understanding this ratio helps investors assess a company’s performance and forecast industry trends.

## 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 industry](https://www.investopedia.com/terms/t/technology_sector.asp), specifically in the semiconductor equipment sector.

Investors and analysts use this ratio to gauge how well individual companies and the entire technology sector are performing. A ratio above 1 implies more orders were received than filled, indicating strong demand, while a ratio below 1 implies weaker demand.

### Key Takeaways

*   The book-to-bill ratio measures a company's order inflow against its outgoing shipments over a designated period.   
    
*   A ratio above 1 suggests stronger demand, while a ratio below 1 indicates diminished demand.   
    
*   This metric is crucial in sectors like technology and aerospace for assessing supply and demand.   
    
*   A ratio of exactly 1 means a company meets its demand efficiently with aligned supply.   
    
*   Companies may use book-to-bill ratios to gauge business performance and forecast future needs. 

## Calculating the Book-to-Bill Ratio: Step-by-Step

The formula to calculate the book-to bill ratio is:  

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

## Interpreting the Book-to-Bill Ratio: What It Means for Businesses and Investors

A book-to-bill ratio is typically used for measuring [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) in volatile industries such as the technology sector. The ratio measures the number of orders coming in compared with the number of orders going out.

A company fulfilling orders immediately 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 1, or 500/500.

The book-to-bill ratio shows how fast a business meets product demand. It also indicates the strength of sectors like aerospace or defense manufacturing. It may also be used when determining whether to purchase stock in a company.

If a business has a ratio of less than 1, there may be more [supply](https://www.investopedia.com/terms/s/supply.asp) than demand. For example, Company B books 500 orders for parts, and then ships and bills 610 orders, including some orders from the previous month. The booked and billed orders have a ratio of 0.82. For every dollar of orders, the company billed, only $0.82 of orders were booked that month.

However, if the [ratio](https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx) is greater than 1, there may be more [demand](https://www.investopedia.com/terms/d/demand.asp) than can be efficiently supplied. For example, Company C books 500 orders for parts, and then ships and bills 375 orders. The book-to-bill ratio is 1.3, or 500/375. In contrast, a business with a ratio of 1 is meeting supply and demand adequately by shipping and billing orders as they are received.

## Book-to-Bill Ratio in Action: A Real-World Case Study

As a historical example, ASMPT Limited, a Hong Kong-based [semiconductor](https://www.investopedia.com/terms/s/semiconductor.asp) and electronics solutions manufacturer, reported in April 2024 that its book-to-bill ratio had moved above 1 after seven quarters. ASMPT attributed the improvement to bookings growing 17% quarter over quarter, coming from semiconductors and surface mount technology.  

## What Is the Difference Between Bookings and Billings?

Bookings represent a customer’s intent to commit to a purchase from your business. Billings represent the collection of your customer’s money when the purchase is complete.

## What Is a Good Book-to-Bill Ratio?

A book-to-bill ratio greater than 1 is typically considered to be a good sign of high demand in an industry. However, it is important to know which performance indicator you are interested in. If you need to know whether a business has enough supply to cover demand, a book-to-bill ratio of exactly 1 means it is meeting its customers’ demand in a timely manner.

## Why Would a Company Have a Book-to-Bill Ratio of Less Than 1?

A company may have a book-to-bill ratio of less than 1 if it is shipping out more units than it has received orders for in the current period, whether that’s a month or a quarter, etc. If a company ships out more units than it receives orders for in the same period, it means it is fulfilling orders from a previous period. That is indicative of a decreasing demand for the product.

## Conclusion: Assessing the Significance of the Book-to-Bill Ratio

The book-to-bill ratio is a critical metric for assessing the balance between supply and demand in industries like technology and semiconductors. A ratio above 1 signals strong demand, while a ratio below 1 indicates fulfilling previous orders with current supply. This measure helps investors and managers gauge a company’s ability to meet market demands and forecast industry trends effectively.

> **Article Sources**
>
> 1.  ASMPT. “[ASMPT Announces 2024 First Quarter Results](https://www.asmpt.com/en/news/asmpt-announces-2024-first-quarter-results/).”