What Is Net Current Asset Value Per Share?
Let me explain what net current asset value per share, or NCAVPS, really is. This measure comes from Benjamin Graham, and it's one way to judge if a stock is worth your attention. As a value investor, you should know that NCAVPS comes from taking a company's current assets and subtracting all its total liabilities.
Graham treated preferred stock as a liability, so you subtract that too. Then, divide the result by the number of shares outstanding. It's like working capital, but harsher—you subtract total liabilities and preferred stock from current assets, not just current liabilities.
The Formula for NCAVPS
Here's the straightforward formula you need: NCAVPS equals current assets minus (total liabilities plus preferred stock), all divided by shares outstanding. That's it—direct and to the point for evaluating stocks.
Key Takeaways
- Benjamin Graham created NCAVPS to help you evaluate stocks as potential investments.
- This metric is essential for value investors; you get it by subtracting total liabilities, including preferred stock, from current assets and dividing by shares outstanding.
- Compare NCAVPS with the share price, and Graham said you could spot undervalued stocks at bargain prices this way.
Understanding Net Current Asset Value Per Share (NCAVPS)
When Graham looked at industrial companies, he saw that investors often overlook asset values and fixate on earnings. But you can find real bargains by comparing NCAVPS to the share price.
At its core, net current asset value is the company's liquidation value. That's the total worth of physical assets like fixtures, equipment, inventory, and real estate—nothing intangible like intellectual property, brands, or goodwill. If the company shuts down and sells everything physical, that's your liquidation value.
So, if a stock trades below NCAVPS, you're buying the company for less than its current assets are worth. As long as the company isn't doomed, you'll likely get back more than you paid.
Special Considerations
Beyond NCAVPS, Graham pushed other strategies for spotting undervalued stocks. Take defensive stock investing—you buy into companies with stable earnings and dividends, no matter the market or economy.
These defensive stocks appeal because they shield you in recessions, offering a buffer against market drops. You'll find them in consumer staples, utilities, and healthcare. They hold up in tough times since they're non-cyclical, not tied to business or economic swings.
The Bottom Line
Graham's advice is clear: you'll gain a lot by investing in companies where the stock price is no more than 67% of their NCAV per share.
But remember, not every stock picked this way will deliver strong returns. Graham stressed diversification—hold at least 30 stocks when using this approach.
