Find out what a company is really worth with NAV

Julie Brownlee, Fsp Invest, 26 Aug. 2014

Tags: net asset value, nav, what is nav, how to use nav, how to calculate nav, what nav tell you



When you invest in a company, how can you know how much you’re paying in relation to what the business is really worth?

One way to strip a company down to the bare bones to find out is to look at the net asset value.

So what is a company’s net asset value?

Read on to find out what you need to know…



How can you calculate a company’s net asset value?


To find out a company’s net asset value (NAV), you need to have a look at its most recent financial statements. You’ll usually find a company’s NAV listed in the balance sheet.

The NAV is the difference between a company’s assets (what it owns) and its liabilities (what it owes). You can divide NAV by the number of shares in circulation to find out the NAV per share.

NAV is also known as the value of equity or shareholders’ funds within a company.

Think about the house you live in. Your equity in your house is the value of your house minus any outstanding bond you have with the bank. That equity is your NAV.

You can use NAV to give you an idea of what the company would be worth after selling everything and paying all debts.

You can come across massive differences between a company’s NAV and its actual economic value. This is because the value of its assets on the company books might not be the true market value.

NAV also includes intangible assets, like brands. These are notoriously difficult to put a value on.


How to use net asset value


NAV can be very useful when looking at companies such as banks and property developers.

If you’re a value investor and looking for cheap (undervalued) shares, the NAV can also be useful. You can try and find shares that are trading for much less than their NAV and investigate them further.

So there you have it, how to find out what a company is really worth with NAV.

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