The total value of a company's assets less the total value of its liabilities is its net asset value (NAV). For valuation purposes it is common to divide net assets by the number of shares in issue to give the net assets per share. This is the value of the assets that belong to each share, in much the same way that PE measures profit per share.

NAV is useful for the valuation of shares in sectors where the value of a company comes from the assets it holds rather than the profit stream generated by the business. The most obvious examples of these are investment trusts and property companies. Both of these are largely convenient ways in which investors can buy the diversified bundles of assets they hold. NAV is also used elsewhere, such as for extractive industries (mining and oil), usually in combination with other metrics.

The value of the assets may be taken at market prices or at book value. Which is used tends to depend on the sector and the circumstances.

Some assets may need to be excluded altogether. One version of NAV that does this is tangible book value.

For a group of companies the NAV should be based on the consolidated balance sheet, and the value of minority interests must be deducted: an investor buying the company will get indirect ownership of subsidiaries' assets, but less what is attributable to minority interests. If this is not the right approach (perhaps because subsidiaries are in different businesses so a common ratio cannot be applied) it is an indication that you should consider using a sum of parts valuation instead.

NAV of investment vehicles

The net asset value of a unit trust, OEIC or investment trust is calculated using the market value of assets. The value of the underlying assets will change daily, therefore the NAV will also change daily. For funds it is usual to calculate and publish the NAV per share (or unit) daily.

The unit price of unit trusts is based on their NAV. The price that investors pay to purchase unit trust units is the approximate per unit NAV, plus any fees that the fund imposes at purchase (such as sales loads or purchase fees). The price that investors receive on redemptions is the NAV per unit at redemption, minus any fees that the fund deducts at that time (such as deferred sales loads or redemption fees).

Unlike unit trusts and OEICs, investment trusts have a fixed number of shares available and no mechanism for on-going redemptions or issues of shares. Because of this shares can trade at a substantial discount (or, more rarely, a premium) to NAV.

NAV of miners and property companies

NAV is also used to value property companies. Property companies, like investment trusts, usually trade at a small discount to their NAV.

When valuing miners a simple NAV may be used but it may need adjustment (see in-situ value) for the cost of extraction and other factors. Some analysts value miners on a weighted average or multiple valuations using different methods (typically in-situ NAV plus DCF).

While NAV can be computed for any company it is of little relevance in service industries because there is little invested in plant and equipment. Where there is a reasonable component of fixed investment, NAV gives some indication of what underpins a company's share price and is liked by some value investors.