Net asset value

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Net Asset Value (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. It may also be used as a synonym for the book value of a firm.

For collective investment schemes (such as US mutual funds and hedge funds), the NAV is the total value of the fund's portfolio less its liabilities. Its liabilities may be money owed to lending banks or fees owed to investment managers, for example.^[1]

For companies, the NAV is the value of its assets less its liabilities.

For the valuation of assets and liabilities, different methods are used depending upon the circumstances, the purposes of the valuation or the regulations that may apply. For funds, the most common method of valuation is to use the market value of the assets. Other possible methods of valuation are:

• Book value
• Carrying value
• Historical cost
• Amortised cost

Contents 1 Usage 1.1 Funds 1.2 Companies 2 See also 3 References 4 External links

[edit] Usage

[edit] Funds

For open-ended funds, shares and interests are not traded between investors but are issued and redeemed directly between the fund and the investor. The price of those shares or interests in the fund is determined by the NAV at the time when the investor subscribes for them or withdraws his investment.

In contrast, closed-end funds are traded in the open market between investors and so the price of shares or interests in a closed-end fund will be whatever the parties agree to be the price, and might not correspond to the fund's NAV.

[edit] Companies

In determining whether a company is a cheap or expensive investment, one tool used by investors is a comparison of the company's current market capitalization (being the price that the market values the company at) with its NAV. The NAV will usually be below the market price for the following reasons:

• The NAV describes the company's current asset and liability position. Investors might believe that the company has significant growth prospects, in which case they would be prepared to pay more for the company than its NAV.

• The current value of a company's assets may be higher than the historical financial statements used in the NAV calculation.

• Certain assets, such as goodwill (which broadly represents a company's ability to make future profits), are not necessarily included on a balance sheet and so will not appear in an NAV calculation.

A company's NAV will not always be above its market value. For example, analysts and management estimated that Liberty Media Corporation was trading for 30-50% below its net asset value (or "core asset value") in June 2007.^{[citation needed]} Where a company's market value is lower than its NAV, it may be considered more profitable to wind the company up and sell off its assets individually rather than continue to run it as a going concern.

[edit] See also

• Net assets
• Collective investment scheme
• Mutual fund
• Hedge fund

[edit] References

[edit] External links

• Investopedia: NAV
• How to Calculate NAV

v • d • e Investment management Collective investment scheme structures Common contractual fund • Fond commun de placement • Investment trust • Unit trust • Mutual fund • ICVC • SICAV • Unit Investment Trust • Exchange-traded fund • Offshore fund • Unitised insurance fund Investment Styles Active or Passive management • Value or Growth investing • Hedge fund • Socially responsible investing • Fund of funds • Manager of managers • Index fund Theory & Terminology Efficient market hypothesis • Net asset value • Open-end(ed) fund • Closed-end(ed) fund Related Topics List of asset management firms • Umbrella fund • UCITS