This is an ultimate guide on how to calculate Net Asset Value Per Share (NAVPS) with thorough analysis, interpretation, and example. You will learn how to use its formula to perform a stock valuation.
Definition - What is Net Asset Value Per Share?
The net asset value per share (NAVPS), is also known as simply the ‘net asset value’ and as the name suggests, it looks at the value per single share of a fund or company.
As we are talking about value, we typically assume that the higher the better as it implies a better performing company which is also likely to have a high level of investor confidence.
For a company that is publicly traded, investors can use this measure to compare the value of a company’s stock to the actual price it is being bought and sold at which can subsequently highlight good or bad times to buy and sell providing an advantage to an investor looking for a undervalued business.
Investors can and should also look at the net asset value per share of other, similar companies or the industry benchmark in order to further gauge the value of the company stock.
The formula to measure the net asset value per share is as follows:
Net Asset Value Per Share = (Market Value of all Securities Held + Cash and Cash Equivalents - Liabilities) / Number of Shares Outstanding
You can find these numbers on a company’s financial statements.
ACE Company has the following figures on its financial statements:
- Securities: $12,000,000
- Cash and Cash Equivalents: $1,500,000
- Liabilities: $700,000
- Shares Outstanding: 1,600,000
As you can see that ACE Company’s net asset value per share is $4.1.
Interpretation & Analysis
As previously mentioned, there is no ‘idea’ figure, obviously the higher the better but we would need to use the industry benchmark or a comparison to other companies to further understand the meaning of the result.
If the benchmark for example was higher than ACE Company’s NAVPS, this might be a cause for concern as it may imply that the value is lower than it ideally should be and competitor businesses are performing better.
If, on the other hand, the benchmark was lower than ACE’s numbers, we could assume that the company is potentially performing better and is generating more value to each of its shares.
Also, if the stock price was $3.5, as an investor you would be inclined to consider an investment on the understanding that the stock is potentially undervalued on the market and thus is a good ‘deal’.
However, as with all ratios and metrics of analysis, further investigation into the business would be the best course of action before deciding whether or not to invest.
Cautions & Further Explanation
One major flaw of this measure is that the results can quickly become historic.
As shares are bought and sold each day, the number of shares outstanding can change quickly, making the NAVPS very much a snapshot of a single point in time as opposed to a whole period, thus limiting its value.