The Fool FAQ

Book-to-Bill Ratio

The Fool FAQ

Every month, the investing world breathlessly awaits the Book-to-Bill Ratio. Is this anticipation warranted? Just what is the BTB and why should any of us care about it?

The book-to-bill (BTB) ratio is a loose measure of American semiconductor demand.

The "book" in "book-to-bill" refers to orders booked. An order is booked when a company calls up a semiconductor manufacturer and orders some chips.

The "bill" in "book-to-bill" refers to orders billed. An order is billed when it is sent out to the company that ordered it and they have to pay for it.

The book-to-bill ratio is a measure of the total orders booked to participating U.S. semiconductor manufacturers over the total orders those same companies billed. Thus, a book-to-bill ratio of 0.93 means that for every dollar of orders that were billed, only $0.93 of orders were booked.

The book-to-bill ratio is important when looking at the semiconductor manufacturing companies because it gives an overall sense of supply and demand. When the number is below 1.00, it suggests that there is more supply out there than demand.