SmartMoney - The Wall Street Journal

Lipper Rating

The Lipper Rating summarizes a fund's historical risk/reward profile. To determine a fund's rating, the fund's Lipper Risk score is subtracted from its Lipper Return score. The top 10% of funds in each investment class (international equity, domestic equity, fixed-income, or municipal bond) receive 5 stars; the next 22.5%, 4 stars; the middle 35%, 3 stars; the next 22.5%, 2 stars; and the bottom 10%, 1 star. Ratings are recalculated monthly.

Median Market Cap

The median market capitalization of a fund's equity portfolio gives you a measure of the size of the companies in which the fund invests. (Market capitalization is calculated by multiplying the number of a company's shares outstanding by its price per share.) We use a trimmed mean to calculate a fund's median market cap. First, we rank the common stocks (domestic and international) in a fund's portfolio from highest to lowest based on their market capitalizations. Next, we identify the stocks that fall into the middle quintile of the portfolio. We then calculate the average-weighted market cap of the stocks in this middle quintile. The result is the fund's median market cap. The advantage of using a median rather than an average is that the median is not disproportionately affected by one or two extremely large-cap or small-cap holdings. For example, a small-company fund that holds a small position in General Electric for liquidity purposes won't have its market cap unduly skewed by that company's market cap, unless it has a substantial portion of its assets in that stock.

Net Assets

This figure is recorded in millions of dollars and represents the fund's total asset base, net of fees and expenses.

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, Lipper 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.

Price/Cash Flow

This represents the weighted average of the price/cash-flow ratios of the stocks in a fund's portfolio. Price/cash-flow represents the amount an investor is willing to pay for a dollar generated from a particular company's operations. Price/cash-flow shows the ability of a business to generate cash and acts as a gauge of liquidity and solvency. Because accounting conventions differ among nations, reported earnings (and P/E ratios) may not be comparable across national boundaries. Price/cash-flow attempts to provide an internationally-standard measure of a firm's stock price relative to its financial performance.

Price/Earnings Ratio

The price/earnings (P/E) ratio of a fund is the weighted average of the price/earnings ratios of the stocks in a fund's portfolio. The P/E ratio of a company, which is a comparison of the cost of the company's stock and its trailing 12-month earnings per share, is calculated by dividing these two figures. In computing the average, Lipper weights each portfolio holding by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund's final P/E. A high P/E usually indicates that the market will pay more to obtain the company's earnings because it believes in the firm's ability to increase its earnings. (P/Es can also be artificially inflated if a company has very weak trailing earnings, and thus a very small number in this equation's denominator.) A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation.

Price/Sales Ratio

This represents the weighted average of the price/sales ratios of the stocks in a fund's portfolio. Price/sales represents the amount an investor is willing to pay for a dollar generated from a particular company's operations.