Fundamental Analysis

Net Asset Value

1

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.

2

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.

3

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.

4

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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