Issue Tobin's Q should converge to one, which the US ratio contradicts

Summary

MGI draws on the economic concept of Tobin's Q, the ratio of a company's equity value to its net assets, as a benchmark for judging equity valuations. Theory suggests the ratio should hover around one over the long run, because under perfect competition equity value should converge on net assets, that is, the cost of reinvesting in the same capital. In most economies the figure indeed sits near 1.0. The United States is the clear outlier, with equity at 2.4 times corporate net assets, a gap the report links to record profits and a doubled profit share of GDP. It therefore holds that US valuations rest on earnings continuing to grow faster than GDP over the long run.