# Book to Bill Ratio - Explained

What is a Book to Bill Ratio?

# What is a Book-to-Bill Ratio?

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.

## How is the Book-to-Bill Ratio Used?

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.

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