Book-to-Bill Ratio

The ratio of new orders received to units shipped and billed over a specific period, used to measure demand.

The book-to-bill ratio is a key efficiency and demand metric used by investors to measure the health of manufacturing, technology, and industrial companies, particularly semiconductor equipment makers. It compares the value of new orders received (bookings) to the value of products shipped and billed (billings) over a specific timeframe, such as a month or a quarter. To calculate the ratio, an investor divides total new orders by total shipments. A ratio above 1.0 indicates that a company received more orders than it fulfilled, signaling growing demand and an expanding backlog, which typically points to future revenue growth. Conversely, a ratio below 1.0 suggests that demand is slowing down and the company is relying on its existing backlog to sustain current revenue, which could signal a future slowdown. Investors monitor this ratio to gauge near-term business momentum and industry health. While a high ratio is generally positive, extremely high ratios can sometimes highlight supply chain bottlenecks, capacity constraints, or double-ordering by nervous customers, which can artificially inflate demand and lead to sudden cancellations later.

A semiconductor equipment manufacturer receives $120 million in new orders during Q2 while shipping and billing $100 million worth of products. Its book-to-bill ratio is calculated as $120 million / $100 million = 1.20, indicating that demand exceeds current capacity by 20% and the backlog is growing.