Term:NET ASSET VALUE [NAV]

The company’s assets minus its liabilities divided by the total number of shares in issue. Investors like to compare the current share price with the net asset value (NAV), but this approach can be unreliable because some companies have to have substantial assets (such as manufacturing concerns) while others (like service companies) 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 intangible assets (like goodwill and intellectual property and software) then it may not be such a good indication of value. The true measure of value is how effectively management has been able to use the assets to generate a profit. When considering NAV you should always look to see if any of the assets can be revalued. For example, listed shares can be revalued to their current market price. Property often sits on a company’s books at cost and may have appreciated considerably.

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