Net Asset Value (NAV) is a financial metric that is used to measure the value of a company’s assets minus its liabilities. It is commonly used to value investment companies, such as mutual funds and exchange-traded funds (ETFs).
NAV is calculated by taking the total market value of a company’s assets, including cash, investments, and other assets, and subtracting the total market value of its liabilities, such as debt and other obligations. The resulting number represents the net value of the company’s assets, which is also known as its NAV.
For mutual funds and ETFs, NAV is calculated by taking the total value of the fund’s assets, including stocks, bonds, and cash, and dividing it by the number of shares outstanding. This gives investors an idea of the value of each share of the fund.
NAV is important to investors because it gives them an idea of the underlying value of a company or fund. For example, if a mutual fund’s NAV is £50 per share and the fund is currently trading at £55 per share, the fund is trading at a premium to its NAV, which may indicate that it is overvalued. On the other hand, if the fund is trading at a discount to its NAV, it may be undervalued.
The NAV of a company or fund can change due to fluctuations in the value of its assets and liabilities and it does not reflect the short-term market movements of the share price and also it is not a measure of liquidity.
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