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Investment Dictionary

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P/NAV Ratio

Price to Net Asset Value 


P/NAV ratio shows how expensive share is compared to its NAV (net asset value). This ratio is very similar to P/B ratio but in this case market values (not book values) are used. Mostly P/NAV is used for valuation of real estate companies.


(NAV is also used by mutual funds and ETF’s in unit value calculations)


P/NAV ratio calculation: 


P/NAV = market capitalization / (company’s assets in market value – company’s liabilities) *


* Sometimes you may find NAV on annual report, so you may use it (after careful review and adjustments.)

** If there is more than one class of shares, calculation methodic might be different. 

If you are preparing to calculate company’s NAV by yourself, you have to know company’s assets very well, and you have to be an expert of the market (of the valued assets). But if you are beginner, it is very few chances to calculate NAV of the company correctly. Of course, you can calculate P/NAV ratio if you already know NAV.   



Ratio interpretation:


P/NAV ratio is much better than P/B ratio, but is harder to get. However, P/NAV employment in practice can be seen in valuation of real estate (property) investment companies. P/NAV is used for both: investment in property companies and property development companies. But for development companies this ratio isn’t so accurate, because in many cases, NAV provided (in annual reports) by companies is calculated under discounted forecasted cash flows and sometimes may be very far from reality. 


Normally, if P/NAV is lower than 1, it is a good sign. But P/NAV is more trustful when real estate portfolio is consisted not from land, but from ready cash generating property investments. Mostly P/NAV depends on market conditions and it development expectations. 


If you want to find cheap stocks that would be good investments, you have to calculate more valuation multiples, but you can’t rely on one ratio (P/NAV) when making investment decision. 


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