Net asset value
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The Net Asset Value or NAV is a term used to describe the value of an entity's assets less the value of its liabilities. The term is commonly used in relation to collective investment schemes.
Variations
However, while the above definition is simple, there are many different types of entity, and different ways of measuring the value of assets and liabilities.
In the context of collective investments (mutual funds), net asset value is the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis.
In terms of corporate valuations, net asset value is the value of assets less liabilities.
And, to give an indication of what we could mean by the value of assets, consider some of these variations. Each one achieves something slightly different, and is applied in different ways.
- book value
- historical cost
- amortised cost
- market value
Usage
Investors might want to know if a company is cheap or expensive to invest in. One possibility is to compare its current market capitalization with its net asset value - since, all things being equal, one might expect them to be the same. There are reasons why this might not be true.
- NAV covers the company's current asset and liability position. Investors might expect the company to have large growth prospects, in which case they would be prepared to pay more for the company than the NAV suggests.
- The NAV is usually below the market price because the current value of the fund's assets are higher than the historical financial statements used in the NAV calculation. But in the case of, for example, Liberty Media Corporation, analysts and management have estimated that it is actually trading for 30-50% below its net asset value (or "core asset value").
See also
External links
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Collective investment schemes:
Common contractual funds • Fonds commun de placements • Investment trusts • Hedge funds • Unit trusts • Mutual funds • ICVC • SICAV • Unit Investment Trusts • Exchange-traded funds • Offshore fund • Unitised insurance fund
Styles and theory: Active management • Passive management • Index fund • Efficient market hypothesis • Socially responsible investing • Net asset value Related Topics: List of asset management firms • Umbrella fund • Fund of funds • UCITS |
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