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Home > Balance Sheets Calculations > Net Added Value (NAV) and Adjusted NAV

Balance Sheets Calculations

Net Added Value (NAV) and Adjusted NAV

What It Measures

Net added value, or net asset value, is the value of a corporate asset or business based on its assets minus its liabilities. Adjusted NAV refers to the value once it has been adjusted for any known or suspected differences between market value and book value. In share dealing, NAV refers to the value of a portfolio minus its liabilities.

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Why It Is Important

For investors, the NAV gives an idea of appropriate share prices. For example, if a fund’s NAV is $10, you should expect that you can buy the fund’s shares for $10 each, although there are exceptions to this rule, such as a newly launched fund. NAV is particularly important when valuing shares in companies where much of the value comes from assets rather than the profit stream—such as investment trusts, but also property companies.

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How It Works in Practice

To calculate NAV for an investment portfolio, you should use the following formula:

Net added value = (Market value of all securities + Cash + Equivalent holdings − Liabilities) ÷ Total shares outstanding

For example, if a mutual fund holds $10.5 million in securities, $2 million in cash, and has liabilities totaling $0.5 million, with one million shares outstanding, then the NAV calculation would be as follows:

(10.5 + 2 − 0.5) ÷ 1 = $12

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Tricks of the Trade

  • When calculating NAV for collective investments such as mutual funds, NAV is the total value of the portfolio less liabilities, calculated on a daily basis. Another alternative measurement for NAV is to add together unit capital and reserves held by a fund.

  • In corporate valuations, NAV is the value of assets less liabilities. Assets include anything owned, whether in possession or not, while a liability is anything that is a potential cost to the business. Obviously this means calculating NAV for corporate entities is more difficult, and might be based on book value, carrying value, historical costs, amortized cost, or market value.

  • NAV is a good way to keep track of price changes and asset valuations. However, you should keep in mind that the NAV calculation will change from day to day, and does not necessarily reflect the performance of the fund. In the early days of a fund, NAV will rise and fall as the fund’s managers take their fees, and each time the fund makes a payout to shareholders. When a fund opens, it often trades at a premium to NAV, later falling to a discount.

  • In general, a low NAV is considered a better investment opportunity than a high NAV. However, because NAV values on investment portfolios are calculated daily, critics argue that they are not a good performance indicator.

  • In mutual funds, NAV per share is calculated at the close of trading each day based on closing share prices of securities held in the fund’s portfolio. Any buy and sell orders are processed based on the day’s NAV.

  • The price that investors pay to purchase unit trust units is based on the approximate NAV per unit, plus fees that will be imposed by the unit’s managers such as purchase fees.

  • While you can calculate NAV for almost any business or fund, it is not of any real use when applied to service companies where there are few assets of value, such as plants, property, or equipment.

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Further reading on Net Added Value (NAV) and Adjusted NAV


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