What is Net Asset Value Per Share (NAV)?

Net asset value

Net asset value per share is quite an important concept to discuss. As we know that fundamental analysis is a vast subject, there are many ratios, valuations, and balance sheets to analyze the market fundamentally. The NAV per share is one of them. It also refers to NAV or NAVPS as well. NAVPS has multiple uses in the stock market and mutual funds also but in both of the investment processes the concept of NAV is almost the same.

FAQ

What does NAV mean?

Net Asset Value, or NAV, is the sum of whole the market value of all the shares investors held in their portfolio. It includes cash, less the liabilities, and it is divided by the total number of outstanding units. Hence, the NAV is basically nothing but the ‘book value.

How do you calculate net asset value per share?

The net asset value per share is calculated by dividing the actual net asset value of the fund just by the number of shares outstanding. So, it also refers to the book value per share (BVPS).

Is a higher or lower NAV better?

Generally, most of us would say the one with the lower NAV would work better. So, a lower NAV would give investors more units. And, oppositely, a higher NAV would put a lesser number of units in investors’ hands. You should remember that the value of your investment in both cases would be the same.

What Does Net Asset Value Per Share Tell You?

The net asset value per share (NAVPS) is often applied in relation to open-end or mutual funds.

The net asset value per share includes the total market value of the fund’s investments, cash, cash equivalents, receivables, as well as accrued income. Liabilities equal total short-term and also long-term liabilities, plus all the expenses. The expense includes staff salaries, utilities, and other operational expenses. Here, the total number of expenses may be large such as management expenses, distribution, and marketing expenses, transfer agent fees, custodian, also audit fees, and all.

Net Asset Value Per Share Calculation

NAVPS helps investors to make smart buying and selling decisions in a certain way. It denotes the value or price of one share. The calculation of net value per share is quite simple and straight. In order to calculate the value of assets, liabilities, and the number of shares required. First of all, you need to subtract the asset from the liabilities. After that, divide the amount by the number of shares. The formula is as follows:

Net Asset Value per Share

Points to Remember

  • The NAV per share defines the value per share.
  • Though NAV is not the only tool to calculate or analyze the company’s growth and share value, certainly it helps a lot to find out the fair valuation of a share.
  • Investors can compare the company’s growth level and the worth of shares through net asset value.
  • NAVPS estimation is one of the most significant tools in fundamental analysis.
  • NAVPS provides an idea to see whether the market is optimistic or pessimistic.

Example of Net Asset Value Per Share

Let’s assume a company has 1,00,000 assets and 50,000 liabilities, and the worth of total shares is 5000. Therefore, NAV per share will be (1,00,000-50,000)=50,000, (50,000/5000)=10 Rs.

Let’s see the chart below:

Net Asset Value Per Share Graphical Example

As we can see from this chart that the net asset value per share is gradually increasing every year. In the financial year 2014, the company had its highest NAV.

Importance of Net Asset Value Per Share

  • The NAVPS is just like the stock price as NAV represents the value of one share,
  • Besides this, both measures provide investors with a method of comparing fund performance with the market or industry benchmarks.
  • Moreover, most analysts present the argument that compares long-term changes in the NAVPS of a fund. It is not as meaningful as compared to long-term changes in the price of the stock as funds must periodically distribute the capital gains among the shareholders.
  • However, analysts also argue that the evaluation of short-term changes in NAVPS is basically more productive. 

Limitations of NAV/Share

There is some limitation too. There are industries like media, and advertisement, where the value of these companies is human capital. Hence, NAV calculation is not so effective here. The exact worth of the company asset is based on human capital.

Conclusion

However, NAVPS is quite an important aspect of fundamental analysis. Though it’s not applicable to each and every sector, it has much importance to find out the worth of a share. So, for analyzing a company’s share price NAV is quite significant here.

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Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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