Net asset value

The net asset value (NAV) is one of all key figures that want to provide guidelines on how high or low a stock is valued by the stock exchange in relation to the company’s equity.

This is a key figure that is most often used when valuing real estate companies and investment companies..

This is a fairly easily accessible key figure that does not require much calculation to be able to obtain. Here we go through how the net asset value is defined and take some examples of how it can be calculated.

Definition of the net asset value

To be able to calculate the net asset value, you need to have access to the company’s balance sheet and also how many stocks that have been issued. In the balance sheet, it is equity that you want information about – assets minus liabilities that equity entails.

The very definition of net asset value is then:

Net asset value = Equity (assets – liabilities) / Number of stocks

It can be interesting to think a little about what equity really is for the limited company. This capital is not really the company’s own money but the company’s debt to the stockholders. The equity is the part of the company that belongs to the stockholders.

When equity is calculated by taking assets – liabilities from the balance sheet, this is also usually called the book equity or the visible equity.

It is also possible to use Adjusted Equity in the calculation. This is sometimes defined by the company in the accounts or you have to calculate this yourself. If you are to make this calculation yourself, it is usually possible to use Adjusted Equity = Equity + Untaxed reserves after tax..

Example of calculation of the key figure

As we mentioned above, it is in the balance sheet that we find information about equity and once we have this and the number of stocks issued, it is easy to calculate the net asset value. To exemplify a calculation of a net asset value, we use the large Swedish truck company Volvo (not the passenger car company) that most people know. Here we use the third quarter report from 2013 to find the information we need.

In the balance sheet, we see that equity is SEK 76,035 million and the number of issued stocks is 2,028 million. To then calculate the net asset value, we do it according to:

Equity (assets – liabilities) / Number of stocks:
76036 / 2028 = 37,49 SEK

We can then compare the net asset value of SEK 37.49 against the stock price, which is around SEK 84 at the time of writing. The stock has a so-called substance premium – the price is higher than the substance. Could we then consider that this stock is very highly valued (about twice as high a price)?

The difficulty with making such an assessment as a stockholder is that it is not easy to value the size of equity. There may be so-called invisible assets in the company such as employees, research, new launches of products, etc. that are not visible in the balance sheet.

To interpret and understand substance value

• The difficulty with interpreting the net asset value is about correctly valuing the assets in the company and therefore the equity. It is especially in industrial manufacturing companies that this is difficult.
  
• On the other hand, the net asset value is usually easier to calculate in investment companies where the value is easier to calculate. These types of companies primarily own stocks in other companies and the net asset value states in a clearer way what the share price looks like in relation to the net asset value. It is in these contexts that it is usually mentioned that investment companies are traded at a substantial discount, it means that the net asset value of the company is higher than what the stock price shows.
  
• It is also possible to use adjusted equity in the calculation of net asset value. Sometimes this is stated by the company in the accounts, sometimes you need to calculate this yourself.