How To Use Net Asset Value When Considering Stocks

A company’s NAV might be a trap. There’s more to this valuation metric.

- Simon Brown

On a recent JSE online event I attended, several investment experts were giving stock picks when the topic of net asset value (NAV) came up in relation to how all the stocks being picked were trading above their NAV. As I often refer to NAV in my columns, I thought it would be worth going into detail.

Firstly, what is NAV? It is a metric derived from the balance sheet and essentially entails subtracting all liabilities from all assets. This is also the equity value we use in ratios such as return on equity (RoE). Hence, it is the breakup value of the company.

NAV is also a function of a holding company whereby it is the value of all their assets less any liabilities, often the tax on profits or debt.