In this article we will tell you how to calculate NAV of shares. Let’s take a look on this topic.
The value of each share of a company is denoted by an expression ‘Net Asset Value’ or NAV. It is arrived at by dividing the net asset value of the company with the outstanding shares. NAV is the value that is referred to by the investors to buy or sell the shares. The NAV of public listed companies and large conglomerates is also called as Book Value.
As against the Share Price which changes many times during the trading sessions of any given day, NAV is adjusted once in the day i.e. at the end of the business day. That is why the investors depend on NAV to understand the financial performance of the companies before selling or buying the stocks.
Thus NAV is the reliable source of information about a company’s performance and hence the calculation of NAV of shares is very important for taking important financial decisions. In this article we will be letting you to know the steps to calculate NAV of shares.
Calculation of NAV of Shares
- At first, you have to get the information about the total value of the company or mutual fund that you intend to buy or sell.
- Ensure that you have got the values of all short and long term assets that are held by the company or fund.
- Now you need to estimate the amount of net assets of the company. To know this value, following equation could be used:
Net Assets Amount = Total Securities – Total Liabilities
- If you are worried about the sources to get the above values, don’t worry but go for online search by typing the name of the company or its ticker symbol. There are many reliable websites that offer the updated information.
- Now get the total shares of the company or fund.
- Use the following information to get the NAV.
Net Asset Value = Net Assets Amount / Total Number of Shares
That is it. You have got the NAV of shares of the company or fund that you are intending to buy or sell.
Let us take an example and substitute some values to understand the calculation in a better way.
Assumed that you are looking to buy or sell the shares of XYZ Inc. by calculating the NAV of its shares. Let us jot down the equations that are mentioned above and fill them with some values.
Let us assume that the XYZ Inc. is holding on to a total value of securities worth $1,000,000 and its liabilities are to the tune of $50,000. Let us calculate the Net Assets Amount of XYZ.
$1,000,000 (Securities value) – $50,000 (Liabilities) = $950,000 (Net Assets Amount of XYZ)
Assume that the total shares held by XYZ Inc. on the day of calculation are 1,000,000 then the NAV is;
$950,000/1,000,000 = $0.95 (Net Asset Value of each share of XYZ Inc.)
Financial experts opine that the NAVs alone should not be considered for taking important financial or investment decisions as the performance of a company or fund is influenced by many other factors like distribution of earnings etc.