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.

1 Variations
2 Usage
3 See also
4 External links

[edit] Variations

However, while the above definition is simple, there are many different types of entities, 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.

[edit] 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").

The NAV of an open-end fund will always equal its price. But the price of a closed-end fund may not equal its NAV as closed-end funds are traded in the secondary market and the above reasons cause price to vary from NAV (premium or discount applied).