Net asset value (NAV) refers to the worth of an investment fund, calculated by taking its assets and subtracting its liabilities. To find the per-share NAV, you divide the total NAV by the number of shares that are currently outstanding.
The per-share NAV is typically associated with mutual funds or unit investment trusts. It represents the trading price of the fund’s shares that are registered with the U.S. Securities and Exchange Commission (SEC). Keep in mind that NAV can fluctuate on a daily basis, which means the per-share NAV can also vary accordingly.
How to Calculate NAV
NAV = Assets - Liabilities
NAV per share = (Assets - Liabilities) / Total number of outstanding sharesHow Net Asset Value Works
The distinction between assets and liabilities for businesses is referred to as net assets, net worth, or the company’s capital. NAV is also used in fund valuation and pricing.
A fund’s per-share NAV simplifies pricing for investors, making it easier to assess the value and facilitate the buying and selling of a fund’s shares.
The NAV per individual share usually aligns closely with or matches the book value per share of a company. Firms that are seen as having strong growth potential are often valued higher than what NAV might indicate. For closed-end funds, the per-share NAV is commonly compared to the stock price or market value per share to identify investments that may be undervalued or overvalued.
The Example
Let’s break down how to calculate the per-share NAV of a mutual fund. Imagine the fund holds $100 million in various securities, a number derived from the closing prices of each security for the day.
Additionally, it has $7 million in cash and cash equivalents, $4 million in total receivables, and accrued income of $75,000 for the day. The fund’s short-term liabilities amount to $13 million, while its long-term liabilities are $2 million. For the day, accrued expenses total $10,000.
The fund has 5 million shares currently outstanding.
Conclusion
Net asset value (NAV) refers to the worth of an investment fund, which is figured out by taking its liabilities away from its assets. To find the per-share NAV, you divide the total NAV by the number of shares that are currently outstanding. Investment funds can either be open or closed, and the price of each share is determined by the NAV.