The Net Asset Value (NAV) of a business is obtained by examining the business Balance Sheet carefully and deducting the ALL the Liabilities from ALL the Assets of the business. (see below for definitions)
In many ways it shows the owner’s current stake in the business – particularly when assessing the worth of a private limited company.
PLC’s are completely different. Share price is determined by the frequency of trade in its shares – and set by the brokers trading in the stock market. For this reason business values can fluctuate wildly – determined simply by the supply and demand of its shares – and is easily influenced by two emotional factors – fear and greed of the buyers and sellers!
This regularly causes serious skews in ‘real value’ when trying to assess the company’s true health and potential.
FYI
Balance Sheet – is a key financial document which helps users to assess the financial health and performance of a business.
It shows a summary of everything the company owns (Assets), all the debts the company has to payout (Liabilities) and the amount of money that has been invested in the organisation by the owners (Capital). The balance sheet is a financial statement about a business at a specific point in time.
For compete definitions of the terms Assets, Liabilities and Capital please see the link ‘Hot Tips and Links’ and select the download ‘Finance Definitions’.
If you are unsure why the Balance Sheet always balances when reviewing sets of accounts (and the importance of this key fact), please call for more information.
