The net asset value per share formula is an economic or real estate metric that is used to assess the value of a real estate investment trust (REIT). This real estate investment trust is any company that finances real estate or owns and operates income-producing real estates such as shopping centers, commercial parks and forests, warehouses, office and apartment buildings, hospitals, hotels, and every other type of commercial real estate.
The net asset value per share formula uses the net asset value of a company divided by the number of outstanding shares of the company.
Here we will look at what NAVPS is in simple terms, the formula, calculation examples
What is net asset value per share (NAVPS)
Net asset value per share (NAVPS) is a type of market value ratio. It is an economic metric that represents the value per share of an exchange-traded fund (ETF) or closed-end fund (CEF) or mutual fund.
The net asset value per share is also known as book value per share.
NAVPS Formula = (Net Asset Value)/(Outstanding Shares)
In simple terms, the net asset value per share tells you the value of one share in an exchange-traded fund (ETF) or closed-end fund, or mutual fund.
An exchange-traded fund is a pooled investment fund that is traded on the stock exchange throughout the trading day and pays its investors a certain interest. It could be a single fund containing bonds, stocks, commodities, or a mix of any of these.
A closed-end fund (CEF) is a type of investment whereby a company raises capital for its initial investments by offering a fixed number of shares through a single initial public offering (IPO). These shares are daily traded on the stock exchange and their price may become higher or lower than when they were first offered.
Mutual funds are also known as open-end funds. Unlike closed-end funds (CEFs), they do not have a fixed number of shares. They are managed by professional fund managers to gain profit for people who invest in them. It usually comprises stocks, bonds, money market instruments, and similar assets.
What is the formula for calculating net asset value per share (NAVPS formula)
Net asset value per share (NAVPS) = Net asset value ÷ Outstanding shares
Where:
Net asset value = Total assets – Total liabilities
Outstanding shares = All the shares a company has issued to investors
The net asset value per share formula (NAVSP formula) is an expression that calculates the value per share of an expression which represents the value per share of an exchange-traded fund (ETF) or closed-end fund (CEF) or mutual fund. It is gotten by dividing the net asset value of a company by the number of outstanding shares.
The assets in the net asset value may include revenue that has been earned and billed but has not been received by the company commonly called accounts receivable, revenues that have been earned but not yet billed commonly called accrued income, and items such as dividends or interest payments applicable on that day commonly call receivables, investments, cash, and cash equivalents.
The liabilities include accrued expenses such as staff salaries, operating expenses, and utility costs as well as long-term and short-term liabilities. It could also include distribution and marketing expenses, agent, custodian, and audit fees, management expenses, and all other outflows.
Examples and calculations
As earlier stated, this formula is an economic or real estate metric that represents the value per share of an exchange-traded fund (ETF) or closed-end fund (CEF), or mutual fund. Below, we will look at some calculation examples using the net asset value per share formula.
Example 1
Suppose a mutual fund’s liabilities are $30 million, its total holdings are valued at $120 million and it has 3 million shares outstanding, we can calculate the net asset value per share as follows:
NAVPS = Net asset value ÷ Outstanding shares
Where
Net asset value = Total assets – Total liabilities = $120 million – $30 million = $90 million
Outstanding shares = All the shares a company has issued to investors = 3 million
NAVPS = $90 million ÷ 3 million = $30
Therefore, the net asset value per share is $30
Example 2
Assume that an exchange-traded fund has the following information
| Item | Amount |
| Accrued income for the day | $100,000 |
| Accrued expenses for the day | $20,000 |
| Cash and cash equivalents | $6 million |
| Total receivables | $3 million |
| Long-term liabilities | $3 million |
| Short-term liabilities | 8 million |
| Total investments | $200 million |
If the fund has shares outstanding of 8 million, we can calculate its net asset value per share as
NAVPS = Net asset value ÷ Outstanding shares
Where
Net asset value = Total assets – Total liabilities
Total assets = Accrued income + Cash and cash equivalents + Total investments + Total receivables = $100,000 + $6 million + $200 million + $3 million = $209.1 million
Total liabilities = Accrued expenses + Short term liabilities + Long term liabilities = $20,000 + $8 million + $3 million = $11.02 million
Net asset value = $209.1 million – $11.02 million = $198.08 million
Outstanding shares = Shares outstanding = 8 million
NAVPS = $198.08 million ÷ 8 million
Net asset value = $24.76
Therefore, the net asset value per share is $24.76
Example 3
Suppose ABC company is a mutual fund that holds $10 million in short-term liabilities and $20 million in long-term liabilities. They have $3 million in accrued staff salaries, $900,000 in utility costs, $90 million worth of investments, and 4 million outstanding shares. The company assets include $4 million in receivables, $200,000 in accrued incomes, and $20 million in cash. The company’s net asset value per share can be calculated as
NAVPS = Net asset value ÷ Outstanding shares
Where
Net asset value = Total assets – Total liabilities
Total assets = Investments + Receivables + Accrued income + Cash = $90 million + $4 million + $200,000 + $20 million = $114.2 million
Total liabilities = Short term liabilities + Long term liabilities + Accrued staff salaries + Utility costs = $10 million + $20 million + $3 million + $900,000 = $33.9 million
Net asset value = $114.2 million – $33.9 million = $80.3 million
Outstanding shares = 4 million
NAVPS = $80.3 million ÷ 4 million
Net asset value per share = $20.075
Therefore, the value of one share or NAVPS for ABC company’s mutual fund is $20.075
Example 4
Consider a mutual fund with 30 million outstanding shares that have accrued income of $300,000, $1 million in receivables, $16 million in cash, and $450.5 million in investments. They have $40,000 of accrued operational expenses and $12,000 of other accrued expenses. Their long-term and short-term liabilities are $30 million and $5 million respectively. To calculate its NAVPS, we will use the net value per share formula
Net asset value per share (NAVPS) = Net asset value ÷ Outstanding shares
Where
Net asset value = Total assets – Total liabilities
Total assets = Accrued income + Receivables + Cash + Investments = $300,000 + $1 million + $16 million + $450.5 million = $467.8 million
Total liabilities = Accrued operational expenses + Other accrued expenses + Long term liabilities + Short term liabilities = $40,000 + $12,000 + $30 million + $5 million = $35.52 million
Net asset value = $467.8 million – $35.2 million = $432.6 million
Outstanding shares = 30 million
Net asset value per share (NAVPS) = $432.6 million ÷ 30 million
Net asset value = $14.42
Therefore, the net asset value per share is $14.42
Uses of net asset value per share
The NAVPS is not calculated just for the fun of it. There are various reasons why it is calculated and what it can be used for. Below are some uses for net asset value per share.
- The net asset value per share can be used to compare the performance of a mutual fund against the market or industry benchmarks.
- NAVPS is used to know the value of one share in a mutual fund, exchange-traded funds, and closed-end funds on a specific date or time.
- It is often used in relation to mutual funds since these shares are redeemed at their net asset value per share.
- It is the price at which shares are bought or sold at the end of each trading day.
- Also used to identify potential investment opportunities because it can tell an investor whether the fund is profitable or not. Thereby helping the investor make informed decisions.
- NAVPS can be used to gauge the performance of a fund over a period.
- It is used as a metric when finding undervalued or overvalued investments.
Conclusion
Exchange-traded funds (ETFs) and closed-end funds (CEFs) trade throughout the day like stocks. They are affected by the forces of supply and demand (market forces), which drive their share prices above or below the fund’s net asset value thus affecting their NAVPS. Unlike exchange-traded funds and closed-end funds, mutual funds do not trade throughout the day but their net asset value per share also changes.
Mutual funds are required to calculate their net asset value per share daily at the close of major US exchanges. This is because the value of assets and liabilities, as well as the number of outstanding shares, changes constantly. The value of assets and liabilities are affected by market forces whereas the outstanding shares are affected as investors redeem their shares or new investors buy new shares. This implies that the net asset value per share might be $2 today and become $8 tomorrow.
Closed-end funds however are not required to calculate their net asset value per share daily because their shares are not required to be repurchased by the companies that issue them, that is, they are not redeemable. However, since both closed-end funds and exchange-traded funds (ETFs) trade throughout the day like stocks, they calculate their net asset value per share at the end of each trading day for the purpose of reports but are updated many times per minute in real-time throughout the trading day.
The net asset value per share is a useful metric and investors make informed decisions. However, it should be used along with other investment analysis metrics so as to get the best results.
FAQs
Who calculates the net asset value per share?
The fund manager or administrator is usually the person who calculates the net asset value per share but with the availability of information, anybody can calculate the net asset value per share using the net asset value per share formula
How often is NAVPS calculated?
Using the net asset value per share formula, NAVPS is calculated at least once every business day for mutual funds and unit investment trusts (UITs) as required by the United States Securities and Exchange Commission.
Blessing's experience lies in business, finance, literature, and marketing. She enjoys writing or editing in these fields, reflecting her experiences and expertise in all the content that she writes.
