Net Asset Value
Today we will look at another basic financial term called Net Asset Value, or NAV for short. Before that let’s understand two closely related financial term, tangible assets and intangible assets.
Tangible Assets are physical assets that can be seen or touch or measured. Tangible assets include cash, machinery, plant, buildings and land.
Intangible Assets on the other hand non-monetary assets that cannot be seen, touched or physically measured. Intangibles assets includes things like customer lists, copyrights, patents, trademarks and goodwill. Even harder to measure intangible assets are things such as knowledge know-how, leverage activities, and structural activities.
Net Asset Value is calculated by taking the total assets of a company, minus intangible assets less all liabilities and the par value of preferred stock. It is also known as “net tangible asset” or “book value”.
To calculate the Net Asset Value per share, the net asset value figure is divided by the number of shares in the market. During bad economic times, the share price of a company could be very close to its NAV per share . If the company is a good solid company not in danger of takeover or other problems, then there is very little risk investing in the company.
The term Net Asset Value is commonly used in mutual funds. It means the total value of all the securities in its portfolio, less any liabilities. The unit price is calculated by dividing this figure by the number of units in circulation.
Related Articles
Compound Interest vs Effective interest rate
Overdraft, Rule of 72, Time Value of money. Understand the danger of depending on average return without considering standard deviation.
More advance terms like derivatives, hedging and securitizing.
