Asset Value Per Share

What Is an Asset Value Per Share?

Asset value per share has a number of applications. Frequently, the term refers to the total value of a fund's investments divided by its number of shares outstanding. This type of asset value per share is more commonly referred to as net asset value per share or simply net asset value (NAV) when liabilities are subtracted. NAV is a calculation for both open-end and closed-end funds. (Net) Asset value per share can also refer to a company's fair value minus its total liabilities, divided by its number of shares outstanding. Other applications of the measure are for variable universal life insurance policies and variable annuity contracts.

Understanding Asset Value Per Share

Asset value per share, or more precisely NAV in practice, is the price at which shares in that fund can be bought and sold.

For an open-end fund (mutual fund), the asset value of portfolio securities is calculated with the closing prices of the trading day. For a closed-end fund, NAV can change throughout the trading day based on the movement of the prices of the securities held by the closed-end fund.

Theoretically, asset value should be the same as the sum of the individual securities, but closed-end funds typically trade at either a premium or discount to NAV. This is because their prices on an exchange are determined by supply and demand forces.

Types of Asset Value Per Share

For publicly traded companies, investors can use asset value per share to compare the price of the company's stock to the underlying value of the business. Investors watch for significant differences between these two numbers to make buy or sell decisions. Suppose, for example, that a stock price for a conglomerate is $40 per share. However, a sum-of-parts valuation indicates that the company is worth $60 per share.

Because the asset value, analyzed on a fair market value basis instead of historical book value, is 50% higher than the stock trading price, an investor can make money if the valuation gap closes. An asset value per share calculation is regularly performed for real estate investment trusts (REIT), whereby the income property portfolios are assessed at current market prices. A discrepancy between a REIT's NAV and its trading price could represent a trading opportunity for an investor.

Asset value per share is also a close terminology for variable universal life insurance policies and variable annuity contracts. Asset value per unit or asset unit value (AUV) represents unit ownership for policyholders and annuitants, respectively.