Net Current Asset Value Per Share (NCAVPS)

What Is Net Current Asset Value Per Share?

Net current asset value per share (NCAVPS) is a measure made by Benjamin Graham as one means of checking the engaging quality of a stock. A key measurement for value investors, NCAVPS is calculated by taking a company's current assets and deducting total liabilities.

Graham considered preferred stock to be a liability, so these are likewise deducted. This is then partitioned by the number of shares outstanding. NCAV is like working capital, yet rather than deducting current liabilities from current assets, total liabilities and preferred stock are deducted.

The formula for NCAVPS is:

NCAVPS = Current Assets - (Total Liabilities + Preferred Stock) \u00f7 Shares Outstanding

Understanding Net Current Asset Value Per Share (NCAVPS)

Inspecting industrial companies, Graham noticed that investors commonly overlook asset values and spotlight rather on earnings. Yet, Graham accepted that by contrasting the net current asset value per share (NCAVPS) with the share price, investors could track down bargains.

Basically, net current asset value is a company's liquidation value. A company's liquidation value is the total worth of all its physical assets, like fixtures, equipment, inventory, and real estate. It bars intangible assets, like intellectual property, brand recognition, and goodwill. In the event that a company were to leave business and sell all its physical assets, the value of these assets would be the company's liquidation value.

So a stock that is trading below NCAVPS is permitting an investor to buy a company at not exactly the value of its current assets. Also, as long as the company has reasonable possibilities, investors are probably going to receive substantially more than they pay for.

Special Considerations

Notwithstanding NCAVPS, Graham suggested other value investing strategies for recognizing undervalued stocks. One such strategy, defensive stock investing, means the investor will purchase stocks that give stable earnings and dividends paying little mind to what is happening in the overall stock market and economy.

These "defensive stocks" are especially engaging on the grounds that they safeguard the investor during times of recession, giving the investor a cushion to climate slumps in the markets. Instances of defensive stocks can frequently be found in the consumer staples, utilities, and healthcare sectors. These stocks will more often than not improve during a recession since they are non-recurrent, meaning they are not exceptionally corresponded with the business and economic cycles.

The Bottom Line

As per Graham, investors will benefit significantly in the event that they invest in companies where the stock prices are something like 67% of their NCAV per share.

In any case, Graham clarified that not all stocks picked utilizing the NCAVPS formula would have strong returns, and that investors ought to likewise differentiate their holdings while utilizing this strategy. Graham suggested holding somewhere around 30 stocks.

Features

• By contrasting the NCAVPS and the share price, Graham accepted investors could find undervalued stocks at a bargain price.
• Benjamin Graham made net current asset value per share (NCAVPS), a measure that assists investors with assessing a stock as a possible investment.
• NCAVPS is a key measurement for value investors and is shown up at by deducting a company's total liabilities (counting preferred stock) from its current assets and separating the total by the shares outstanding.