Net Asset Value Per Share (NAVPS)

What is Net Asset Value Per Share (NAVPS)?

The Net Asset Value Per Share (NAVPS) is a metric used to assess the value of a real estate investment trust (REIT), and it indicates the worth of one share of a mutual fund or exchange-traded fund. The NAVPS is obtained by dividing the net asset value of a mutual fund by the number of outstanding shares.

The assets, in this case, may include the market value of a fund’s investments, cash and cash equivalents, accrued income and accounts receivables, whereas the liabilities equals the sum of long-term and short-term liabilities, and accrued expenses such as utility costs and staff salaries.

How to Calculate the Net Asset Value Per Share

The manager of a mutual fund is required to calculate the net asset value per share per accounting period. They must provide important information such as the value of the mutual fund’s assets and liabilities, as well as the expenses incurred by the fund. The steps for calculating the NAVPS is as follows:

Step 1: Calculate the total value of the asset, and generate a profit or loss, depending on the prevailing exchange rates and market value.

Step 2: Calculate the total value of liabilities of the fund (short-term and long-term), as well as the interests and costs on the fund’s debts.

Step 3: Find the expenses incurred by the fund and book provision in the accounting period (to apportion the costs to the different net asset value periods). The expenses may include audit costs, administrator’s fees, taxes, and other operating costs.

Step 4: Calculate the net asset value per share. The formula for calculating NAVPS is given as follows:

Practical Example of NAVPS

XYZ Corporation is a mutual fund with five million outstanding shares and $100 million worth of investments. The assets of the company include $10 million in cash, $1.5 million in receivables and $500,000 in accrued incomes. Also, XYZ Corporation holds $30 million in short-term liabilities and $10 million in long-term liabilities. There are $1.5 million accrued in staff salaries. Using the given information, we can calculate the NAVPS as follows:

Step 1: Assets = $100,000,000 + $10,000,000 + $1,500,000 + $500,000 = $112,000,000

Step 2: Liabilities = $30,000,000 + 10,000,000 +$1,500,000 = $41,500,000

Step 3: NAVPS = ($112,000,000 – $41,500,000) / 5,000,000 = $70,500,000 / 5,000,000 = $14.10

The net asset value of a mutual fund changes on a daily basis, because the value of assets and liabilities change every day. The number of outstanding shares also changes constantly, as investors redeem their shares, and new investors buy new shares. It means that the NAVPS of a fund’s net assets may be $14.10 today and shift to $12 or $16 by the next day. Mutual funds and ETFs are required to compute their NAV on a daily basis, at the close of major US exchanges.

Net Asset Value Per Share vs. Market Price

The net asset value per share of a mutual fund refers to the price at which investors buy and sell shares on a regular trading day. However, it is different from exchange-traded funds, which trade like stocks throughout the day.

ETFs and closed-end funds are affected by the forces of supply and demand, which drives the share prices of a fund above or below the fund’s net asset value. The market price is the price at which investors can buy or sell shares during an active trading day.

The net asset value per share of an ETF is calculated at the close of an active trading day, and it represents the value of each share’s underlying assets. Although the NAVPS and the market price of an ETF may be different, the variance is usually relatively minor. Such a scenario can be explained by the ETFs redemption mechanism that keeps the market value and the NAV value reasonably close.

Importance of Net Asset Value Per Share

The net asset value performs similar functions as the stock price, as it represents the worth of one share of a mutual fund or an ETF. The NAVPS can be used to compare the performance of a mutual fund against the market or industry benchmarks.

However, analysts argue that the evaluation of short-term changes in the NAVPs is more productive than comparing long-term changes because most funds distribute capital gains and profits to shareholders on a regular basis.

On the other hand, one limitation of NAVPS is its daily price fluctuations due to market forces, as well as the fund’s expenses, which arise in due course. NAVPS is calculated at the end of the day for mutual funds when the market closes, and as a result, investors cannot determine the intraday value of their shares.

It is generally a disadvantage for mutual funds, and ETFs are preferred in such a case (although NAVPS is calculated at the end of the trading day for reporting, the prices are updated almost real-time throughout the trading day).

More Resources

Thank you for reading CFI’s guide on Net Asset Value Per Share (NAVPS). To help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Current Income (Real Estate Investments)
• Historic Pricing
• NAV Return
• Private REITs vs Publicly Traded REITs
• Real Estate Financial Analysis
• See all valuation resources