What Is Net Asset Value Per Share (NAVPS)?
Net Asset Value Per Share (NAVPS) is a vital financial metric that represents the per-share value of a mutual fund, exchange-traded fund (ETF), or closed-end fund. It is derived by dividing the total net asset value (NAV) of the fund—which is the difference between the fund’s total assets and total liabilities—by the number of shares outstanding.
Key Takeaways
- NAVPS is primarily used for valuing shares of mutual funds, ETFs, and closed-end funds.
- In open-end mutual funds, shares are bought and sold based on their NAVPS, reflecting the fund’s underlying value per share.
- Market price and NAVPS may differ in closed-end funds and ETFs due to market conditions.
How To Calculate Net Asset Value Per Share
Calculating NAVPS is straightforward but crucial:
Net Asset Value Per Share = \frac{NAV}{Shares Outstanding}
where:
NAV = Assets - Liabilities
Here the denominator, Shares Outstanding, plays a critical role as it determines how the net value is spread across shares, which in turn affects investment decisions.
How NAVPS Is Used in the Financial World
NAVPS is frequently referenced when dealing with open-end mutual funds, where the redemption and issuance of shares happen at the NAV. For closed-end funds and ETFs, although they trade like stocks at prices influenced by the market, the NAVPS still serves as a benchmark to determine if the fund is traded at a premium or discount.
Example Illustration:
Assume a mutual fund with a portfolio netting an NAV of $516.75 million and with 7.5 million shares. If liabilities sum up to $25.05 million, the NAVPS would be calculated as follows:
NAVPS = \frac{($516.75 million - $25.05 million)}{7.5 million shares} = $65.56 per share
Investors looking into this fund would evaluate whether buying at this NAVPS offers good value based on their market expectations and investment strategy.
The Difference Between NAVPS and Market Price
While NAVPS calculates the intrinsic value per share based on assets and liabilities, the market price is what investors are currently willing to pay for those shares. The disparity between these two figures can reveal market sentiments and speculative elements affecting the stock or fund.
Related Terms:
- Market Price: Current trading price of a stock or fund on an exchange.
- Assets and Liabilities: Key financial statement components, determining the overall financial health and position.
- ETFs and Mutual Funds: Investment funds that offer diversified portfolios; ETFs are traded like stocks throughout the day, while mutual funds are bought and sold based on their daily NAVPS.
Suggested Books for Further Reading:
- “The Mutual Funds Book” by Alan Northcott – A detailed guide on how to wisely select and manage mutual funds.
- “The ETF Handbook” by David J. Abner – Insights into the mechanics and strategies behind ETF investments.
- “Security Analysis” by Benjamin Graham and David Dodd – The bible on value investing and an essential guide to understanding intrinsic values in investments.
Navigating the complexities of financial metrics like NAVPS with an understanding of both theoretical concepts and real-world applications can refine your investment strategy and decision-making skills. This awareness ensures that you’re not just following the numbers, but truly understanding what they represent.
