The weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company�s per-share book value. Stocks with negative book values are excluded from this calculation. In theory, a high P/B ratio indicates that the price of the stock exceeds the actual worth of the company's assets, while a low P/B ratio indicates that the stock is a bargain. All P/B ratios greater than 75 are capped at 75 for the calculation.
The P/B ratio of a company relates the per-share market price of the company�s stock to its per-share book value, the historical accounting value of the company�s tangible assets. This figure may not always represent the real value of a company because it excludes such intangible assets as patents and trademarks. A high P/B ratio indicates that the price of the stock exceeds the actual worth of the company�s assets. A low P/B ratio would indicate that the stock is a bargain, priced below what the company�s assets could be worth if liquidated. Historically, value investing based on P/B's has been very popular with both investors and fund managers. By investing in stocks with low P/B ratios, an investor can actually purchase the tangible assets of the company for less than they are worth. One way in which stocks can become undervalued in this way is because book value records the assets at their initial cost minus all depreciation. If the company has older assets that have been significantly depreciated, their actual worth may be much higher.