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Price/Book Ratio

The price/book (P/B) 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 (sometimes referred to as carrying value). A company's book value 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, Morningstar weights each portfolio holding by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the final P/B.

The price/book ratio can tell investors approximately how much they're paying for a company's assets, based on historical, rather than current, valuations. Historical valuations generally do not reflect a company's current market value. Value investors frequently look for companies that have low price/book ratios.

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