Fundamental Analysis

Net Asset Value


A simple method that fundamental analysts use to assess the real value of a company is called net asset value. It is essentially the value of the firm when you subtract the liabilities from the assets and cash.


The formula for net asset value is as follows: (total assets + cash) – total liabilities. So, an example would be… ($2M + $500K) – $1M = $1.5M… so the net asset value in this example is $1.5M.


The net asset value of a company can be compared with the market capitalization of its stock price, as a way to find out whether a company is over-valued or under-valued.


The advantage of this approach is that is simple. A major disadvantage is that it ignores other factors that determine whether an investment is attractive or not, such as company earnings or company growth rates.

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