PDSnet Glossary

Term

Categories

Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

Versions

Name	synonyms = 1, variations = 2, abbreviations = 3

Publish: (0 = no, 1 = yes)

Definition

<p style="text-align: justify;">The <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span>'s <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">assets</span> minus its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">liabilities</span> divided by the total number of <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">shares in issue</span>. <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">Investors</span> like to compare the current <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">share</span> <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">price</span> with the net asset value (NAV), but this approach can be unreliable because some companies have to have substantial assets (such as <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">manufacturing</span> concerns) while others (like <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">service companies</span>) do not. The concept also depends on the exact nature of the company's assets. For example, if the NAV includes a considerable amount of <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">intangible assets</span> (like <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">goodwill</span> and <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">intellectual property</span> and software) then it may not be such a good indication of value. The true measure of value is how effectively <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">management</span> has been able to use the assets to generate a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">profit</span>. When considering NAV you should always look to see if any of the assets can be revalued. For example, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">listed</span> shares can be revalued to their current <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">market price</span>. <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">Property</span> often sits on a <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span>'s books at cost and may have appreciated considerably.</p>