Book to bill ratio

The book to bill ratio is most commonly used in the semiconductor industry, although it is applicable to any industry that takes orders significantly in advance of invoicing. It is the ratio of the orders taken in a period to the amount invoiced over the same period. Invoicing is usually done shortly after shipping.

The amount invoiced is significant as it is usually what is recognised as revenues by most companies, although revenue recognition policies do vary: they can be much more complex than simply adding up the invoices sent out in a period.

The difference between the amount ordered and the amount invoiced is an indicator of whether demand is rising or falling. A book to bill ratio of one shows stability, more than one indicates growth and less than one indicates decline. However this is true only after correcting for seasonal variations.

Although book to bill is an important leading indicator of sales, it should not be looked at in isolation, particularly in the semiconductor industry where demand can change quite rapidly.