The price/book ratio of a fund is the weighted average of the price/book ratios of all the stocks in a fund’s portfolio. Book value is the total assets of a company, less total liabilities. A company’s P/B ratio is calculated by dividing the market price of its outstanding stock by the company’s book value, and then adjusting for the number of shares outstanding. (Stocks with negative book values are excluded from this calculation.) In computing a fund’s average P/B ratio, Morningstar weights each portfolio holding by the percentage of equity assets it represents; larger positions thus have proportionately greater influence on the final P/B. A low P/B may indicate that the stocks are bargains, priced below what the company’s assets could be worth if liquidated.
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