Asset Valuation

Net Asset Value is the market value of the assets of the scheme minus its liabilities.

Tina S
Tina S
Jan 30, 2010
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In finance, valuation is the process of estimating the potential market value of a financial asset or liability.

Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., Bonds issued by a company). Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.

Asset Value:

"Net asset value," or "NAV," of an investment company is the company’s total assets minus its total liabilities.

For example, if an investment company has securities and other assets worth $100 million and has liabilities of $10 million, the investment company’s NAV will be $90 million. Because an investment company’s assets and liabilities change daily, NAV will also change daily. NAV might be $90 million one day, $100 million the next, and $80 million the day after.

Asset Valuation:

The process of determining the current worth of a portfolio, company, investment, or balance sheet item.
Net asset value (NAV) is a term used to describe the value of an entity's assets less the value of its liabilities. The term is most commonly used in relation to open-ended or mutual funds due to the fact that shares of such funds are redeemed at their net asset value.

However, the term may also be used as a synonym for book value or the equity value of a business. Net asset value may represent the value of the total equity, or it may be divided by the number of shares outstanding and, thereby, represent the per share net asset value.

In terms of corporate valuations, the calculation: value of assets less liabilities equals net asset value (NAV), or "book value", is used.

Three factors affecting NAV

•    dividends and income earned on assets
•    capital gains or losses when the assets are sold
•    capital appreciation in the underlying value of the stocks held in the portfolio

How NAV is calculated:

NAV = the total market of all the securities in the mutual fund divided by the number of units in the mutual fund.


Units = slices of pie and Mutual fund = total pie.

Say you have one or more units, you bought 10 units of the mutual fund at 10 per unit = 100 total. Value per unit is now 16, Total = 160 (10 units x 16 per unit).

Profit = 60% (16 divided by 10) plus any distributions (cash) you received over you holding period.

Valuation of assets in open-ended funds

The NAV of a collective investment scheme (such as a US mutual funds or a hedge fund) is calculated by reference to the total value of the fund's portfolio (its assets) less money owed to lending banks, fees owed to investment managers and service providers and other liabilities.

The portfolio's assets are generally valued by objective criteria established at the outset of the fund. Where assets are traded on a securities exchange or cleared through a clearing firm, the most common method of valuation is to use the market value of the assets in the portfolio (using, for example, the closing bid price or last traded price).

The value of OTC (over the counter) derivatives may be provided by the counterparty to the derivative, who may be trading similar derivatives with other parties. Where there is no objective method of calculating the value of an asset, the fund manager's own valuation methods may be used.


In determining whether shares in a public company are a cheap or expensive investment, one tool used by investors is a comparison of the company's current market capitalization (being the price at which the market values the company) with its NAV.

The NAV will usually be below the market price for the following reasons:

  • The NAV describes the company's current asset and liability position. Investors might believe that the company has significant growth prospects, in which case they would be prepared to pay more for the company than its NAV.
  • The current value of a company's assets may be higher than the historical financial statements used in the NAV calculation.
  • Certain assets, such as goodwill (which broadly represents a company's ability to make future profits), are not necessarily included on a balance sheet and so will not appear in an NAV calculation.

Valuations and estimates are unaudited  and may  not comply  with generally  accepted accounting or valuation principles. The Net Asset Value is the value at one point in time and does not reflect any change in value since that time.



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