Market Value to Book Value ratio:

Market Value to Book Value ratio: this is defined as the ratio of market value per share to the book value per share. It is a measure of the firm's generation of wealth. If it is more than 1, that is, if the market value exceeds the book value, it means wealth has been generated.  We can see that if the ratio of market value to book value is equal to one, all the three ratios,  namely, earnings price ratio (reciprocal of price-earning ratio), yield and return to equity will be equal to each other. Nobel laureate James Tobin has proposed a valuation ratio, called Tobin's q, after the letter he used to denote it. The q ratio is defined as:

(Market value of equities and liabilities)/(estimated replacement cost of assets)

The q ratio looks a little like the market value to book value ratio. But there are two important differences: the numerator of the q ratio includes liabilities of the issuer of debt instruments along with market value of equities, that is, it includes all wealth. Also, in the denominator of the q ratio, the assets are valued at their replacement cost, not book value.

The main functions of the secondary markets are that it provides useful information both to the issuer as well as investors the  function it serves for the issuer is as follows. The secondary market provides regular information, by the latest prices of shares, to the original issuer of the shares about the value of its shares. The periodic trading of the asset reveals to the issuer the price the share commands in the market at a certain time. Such information helps the issuer to evaluate how well they are using the funds from earlier primary market activities, and it also provides some idea about how receptive investors will be to new issues.

To the original buyer of shares in the initial public offering in the primary market, the secondary market acts like an escape clause. If the shares do not seem to be doing as well as the original buyer thought, he or she can always sell it for cash. Of course, the investor can also sell it for cash with a view to making capital gains. The secondary market provides the original buyer of the  hares an opportunity to sell these for cash. In fact, if the investors are not confident tat they can move from one financial asset to another, they might be reluctant to invest in any security. This will make it difficult for the issuers to issue new shares, and  moreover, they will have to offer higher returns or dividends to attract investors. The secondary markets also perform a useful function in that they provide information about the assets' fair price, as well as liquidity from their assets should they want to sell the assets. Another very important function performed by secondary stock markets is that they reduce search costs, by making it easier for buyers and sellers of assets to find each other. The secondary markets also lower transactions cost.