Net asset values ​​(NAV) – QuotedData

0


Net asset values ​​(NAV)

Click here to access the What is a discount section
Click here to return to the Board and Directors section
Click here to return to Investment companies – Part 2
Click here to return to Investment companies – Part 1

The net asset value (NAV) of an investment company is the total value of everything the company owns minus everything it owes. It is often quoted as amount per share.

Definition

NAV, usually abbreviated as NAV, is calculated by adding the present value of everything the company owns and deducting everything it owes. They are generally quoted in amount per share.

Net asset value is the most important information you need to help you decide whether an investment company is attractive or not.

Usually every day

Many investment companies, but not all, publish their net asset value on a daily basis.

But not always – check

For some companies, however, it is more difficult to value their investments. Investment companies that invest in things like real estate or private equity (companies that are not publicly traded) calculate their net asset value less frequently – perhaps once, two or four times a year. Remember to check the age of the NAV before using it to decide whether an investment company’s stock price looks attractive or not.

The net asset value of a fund invested in listed assets is almost always calculated from bid prices in the market. These reflect the price that a buyer is willing to pay for a security but do not take into account the price achievable if the manager tried to sell all the shares in the fund at one time. The selling prices of the fire could be lower.

More than one type

Now here’s the confusing part – Investment firms can publish a range of NAVs:

  • Including income
  • Excluding income

The first two types of NAV are NAVs including income for the current year and NAVs excluding income for the current year. In the past, the usual practice was to publish the net asset value excluding income for the current year (the income for the current year corresponds to all dividends and interest received by the investment company during its current accounting year. MINUS any operating expenses of the investment company that are charged against income). Previously, the assumption was that investors would receive most of the current year’s income in the form of dividends. So they only wanted to see the value of the underlying capital (anything other than income) of their investment. However, there are times in the year when for some funds the current year income figure is quite large – maybe three or four percent. of the net asset value. The powers that decided that the exclusion of current year income was misleading, so they asked investment companies to publish net asset values ​​including current year income. However, some investment companies publish both – so check which one you are looking at.

  • Adjustment of the market value of the debt

The next NAVs are:

  • Net asset values ​​with debt at fair value
  • NAV with debt at market value
  • Net asset values ​​with debt at par. The face value of the debt is simply the amount that the business has borrowed.

However, the concept of fair value of debt requires some additional explanation;

The NAV with Debt at Fair Value (also called NAV with Debt at Market Value) is a net asset value adjusted by an estimate of the cost of repaying debt today.

What is the market value of the debt?

Some companies borrow money for a long time. People who have loaned this money to the business know that they can count on a predictable level of income until the loan is paid off. They could sell the debt to someone else but, if the market interest rate has changed since they loaned the money, the debt is more (if interest rates have gone down) or less (if interest rates have risen) of value in the eyes of the buyer. The fair value of debt is simply its value if you adjust the value of the debt so that a buyer earns the market interest rate.

An example

For example, suppose I lend £ 100 for a year at 10% interest, then say the market interest rate is immediately halved to 5%. If I sell the loan now, a buyer will get £ 110 for holding my loan, compared to £ 105 for an open market loan. My loan is worth more to the buyer, so he should pay me more. The price he would have to pay is 110/105 = £ 104.76.

Our website

Wherever we can on our website, we use net asset values ​​calculated taking into account current year income and debt at fair value. We’re doing this because it’s the closest you would get if the company sold all of the fund’s assets today and returned the money to you. BUT remember that in the real world there may be costs associated with selling the assets and liquidating the company and the company may not be able to get the bid price for its investments. , especially if the assets are sold in a hurry.

Click here to access the What is a discount section
Click here to return to the Board and Directors section
Click here to return to Investment companies – Part 2
Click here to return to Investment companies – Part 1


Share.

Leave A Reply