What is Net Current Asset Value Per Share?

Net current asset value per share (NCAVPS) is a measure created by Benjamin Graham as one means of gauging the attractiveness of a stock. A key metric for value investors, NCAVPS is calculated by taking a company's current assets and subtracting total liabilities. Graham considered preferred stock to be a liability, so these are also subtracted. This is then divided by the number of shares outstanding. NCAV is similar to working capital, but instead of subtracting current liabilities from current assets, total liabilities and preferred stock are subtracted.

NCAVPS = Current Assets- (Total Liabilities + Preferred Stock)
# Shares Outstanding

Understanding Net Current Asset Value Per Share (NCAVPS)

Examining industrial companies, Graham noted that investors typically ignore asset values and focus instead on earnings. But Graham believed that by comparing the net current asset value per share (NCAVPS) with the share price, investors could find bargains.

Essentially, NCAV is a company's liquidation value. So a stock that is trading below NCAVPS is allowing an investor to buy a company at less than the value of its current assets. And as long as the company has reasonable prospects, investors are likely to receive substantially more than they pay for. According to Graham, investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NCAV per share. And, in fact, a study done by the State University of New York showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4%, by purchasing stocks that fulfilled Graham's requirement and holding them for one year.

However, Graham made it clear that not all stocks chosen in this manner would have strong returns, and that investors should also diversify their holdings when using this strategy. Graham recommended holding at least 30 stocks.