Key Takeaways
- Measures per-share liquidation value of current assets.
- NCAVPS = (Current Assets – Liabilities – Preferred) / Shares.
- Graham's rule: Buy if price < 67% of NCAVPS.
- Identifies deep value 'net-net' bargain stocks.
What is Net Current Asset Value Per Share (NCAVPS)?
Net Current Asset Value Per Share (NCAVPS) is a financial metric that measures a company's liquidation value on a per-share basis, calculated by dividing net current assets by shares outstanding. It focuses on tangible current assets like cash and inventory, subtracting all liabilities including preferred stock, to estimate the minimum value you could receive if the company liquidated immediately.
Originally developed by Benjamin Graham, NCAVPS helps investors identify undervalued stocks trading below their salvage value, offering a margin of safety in value investing.
Key Characteristics
NCAVPS highlights a company's short-term financial health and liquidation potential through concise metrics:
- Focus on Current Assets: Includes cash, receivables, and inventory, excluding intangible assets and fixed assets.
- Liabilities Deducted: All current and long-term liabilities plus preferred shares are subtracted to reflect true net assets.
- Shares Outstanding: Uses diluted shares to account for potential dilution, improving accuracy.
- Conservative Valuation: Often adjusted with conservative multipliers on receivables and inventory for prudence.
- Value Investing Tool: Popularized by Graham for identifying "net-net" stocks priced below two-thirds of NCAVPS.
- Not Fund NAV: Differs from mutual fund net asset value, which includes all assets and liabilities per share.
How It Works
To calculate NCAVPS, first subtract total liabilities and preferred shares from current assets to find net current asset value (NCAV). Then divide this figure by the number of diluted shares outstanding, yielding the per-share liquidation value.
This metric assumes you could liquidate current assets quickly to pay off debts, providing a conservative baseline for equity value. Investors use NCAVPS to screen stocks trading below estimated liquidation value, aiming to capitalize on market inefficiencies and margin of safety.
For example, you might compare NCAVPS to the stock price of companies like Apple or Bank of America to assess if shares are undervalued relative to their current asset base.
Examples and Use Cases
NCAVPS is particularly useful for evaluating financially distressed or small-cap companies where liquidation value matters more than ongoing operations.
- Technology Sector: Investors may analyze Apple's current assets relative to liabilities for a conservative valuation baseline.
- Banking Industry: Bank of America can be assessed using NCAVPS to understand short-term asset coverage per share.
- Value Stock Selection: Screening for stocks listed in best value stocks guides often involves NCAVPS to find "cigar-butt" opportunities.
Important Considerations
Although NCAVPS offers a conservative measure of value, it assumes full recovery of current assets and ignores intangible and long-term assets, which may not be realistic in liquidation scenarios. It is best used alongside other metrics and fundamental analysis.
Also, NCAVPS tends to identify smaller, riskier firms, so diversification and careful evaluation of business viability are critical before investing. Understanding the relationship between face value of shares and NCAVPS can also clarify potential upside or downside risks.
Final Words
Net Current Asset Value Per Share (NCAVPS) offers a conservative estimate of a company's liquidation value, helping identify undervalued stocks with a margin of safety. To apply this metric effectively, compare NCAVPS to the current market price and prioritize investments trading below two-thirds of NCAVPS for a potential buffer against downside risk.
Frequently Asked Questions
NCAVPS is a value investing metric that calculates a company's net current assets (current assets minus total liabilities and preferred shares) divided by shares outstanding. It represents the per-share liquidation value of current assets after paying off debts.
To calculate NCAVPS, subtract total liabilities and preferred shares from total current assets, then divide the result by the number of diluted shares outstanding. This gives the net current asset value per share.
Value investors use NCAVPS to identify 'bargain stocks' trading below their liquidation value of current assets. Benjamin Graham popularized it to find stocks with a margin of safety, especially those priced under 67% of their NCAVPS.
NCAVPS includes current assets like cash, receivables, and inventory, while subtracting total liabilities (both current and long-term) and preferred shares, which are treated as liabilities due to their liquidation priority.
Yes, some versions adjust current assets conservatively by weighting receivables and inventory less than their book value and may also subtract off-balance-sheet liabilities to be more cautious.
According to Benjamin Graham's rule, a stock trading below 67% of its NCAVPS is considered a potential bargain with a safety margin, offering protection against errors or losses if the company is liquidated.
Historically, investing in stocks trading below NCAVPS has yielded strong returns, such as a 33.7% annual return between 1971 and 1983, outperforming benchmarks significantly, though such stocks are rare and often riskier small-cap firms.
NCAVPS is most useful for identifying undervalued, often struggling companies with significant current assets. It may be less relevant for firms with substantial intangible or long-term assets that aren't reflected in current assets.
