Net Asset Value per Share Computation Technique: Net asset value per share computation is quite an important concept to discuss. As we know that fundamental analysis is a vast subject, there are many ratios, valuation, balance sheet 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.
Net Asset Value Per Share FAQ
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.
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.
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 NAVPS 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 to 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.
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 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 Computation-Points to Remember
- The NAV per share defines the value of 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, 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.
Net Asset Value Per Share Example
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:
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.
Limitation of NAV/Share
There is some limitation too. Industries like media, 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.
Importance of NAVPS
- The NAVPS is just like the stock price as NAV represents the value of one share,
- Besides this, both measures provide the investors with a method of comparing fund performance along 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.
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.