Master the calculation of stock net worth and see through the true value of listed companies

In stock investing, “Net Asset Value Per Share” is an unavoidable concept. Many beginners, when looking at stocks, often get confused by various indicators, but actually, NAVPS is like a “family balance sheet” for a listed company — telling you how much the company is truly worth.

What exactly is Net Asset Value Per Share?

Net Asset Value Per Share (NAVPS) simply means the amount of wealth each share represents after deducting all debts from a company’s assets.

Imagine a company with 10 billion yuan in assets, owing 5 billion yuan to the bank, and having to pay wages, rent, and other expenses. If the remaining net assets are 3 billion yuan, then dividing that equally among its shares gives the NAVPS.

More precisely, the calculation includes the company’s share capital, capital surplus, surplus reserves, and undistributed profits — these are the true wealth owned by shareholders.

The calculation formula for NAV is not complicated at all

The basic formula is straightforward:

NAVPS = Shareholders’ Equity / Circulating Shares

Or from another perspective:

NAVPS = (Total Assets - Total Liabilities) / Number of Shares Issued

A more detailed calculation:

NAVPS = (Share Capital + Capital Surplus + Surplus Reserves + Undistributed Profits) / Circulating Shares

For example, suppose a food company has assets of 2.5 billion yuan, liabilities of 1 billion yuan, and 1 billion shares outstanding. Then, NAVPS = (2.5 - 1) / 1 = 1.5 yuan. This indicates that each share is backed by 1.5 yuan of assets.

Is a high NAVPS necessarily good? This is a misconception

Many novice investors ask: “Is a higher NAVPS better?” The answer is not necessarily.

First, it’s important to understand that NAVPS reflects the company’s current assets, but does not indicate its future earning ability. For example, a bank might have a high NAVPS, but if it has been losing money year after year, that NAV is shrinking. Conversely, tech giants like NVIDIA or Microsoft may have relatively low NAVPS, but because of their strong intangible assets (patents, technology, brand), their stock prices are far above their NAVPS.

Another key point is: Changes in NAV do not necessarily reflect operational changes. Sometimes, NAV increases simply because the company issues new shares or distributes bonus shares, not because the business is doing better. The real indicator of the company’s health is its profitability behind the NAV.

Price-to-Book Ratio: a practical tool for stock selection

Here, we introduce a more practical indicator — Price-to-Book Ratio (PBR):

PBR = Market Price per Share / NAVPS

A lower PBR generally indicates a cheaper stock. But beware, being cheap doesn’t always mean it’s a good buy.

For example, a stock’s PBR has fluctuated between 1.6 and 2.5 in the past, and now suddenly drops to 1.2, seeming very cheap. But if the company’s NAV is also declining, it might not be a bargain but a sign of a declining company.

Industry differences are significant. Heavy asset industries like steel, cement, and shipping rely heavily on NAV because assets are their core competitiveness. But in tech and service industries, a low NAV might indicate a light asset base and high efficiency.

Practical application: how to use NAV to select stocks?

Let’s look at some real examples.

TSMC (2330), the world’s largest wafer foundry, has a PBR of about 4.29. Why so high? Because the market is willing to pay a premium for its technological leadership.

Formosa Plastics (6505), mainly producing petrochemical products, has a PBR of about 2.45. As a heavy asset industry, this ratio is relatively reasonable.

Taiwan Mobile (3045), in telecommunications, has a PBR of about 3.29. Telecoms are stable cash flow businesses, and this ratio reflects market recognition of its stability.

In the US market, JPMorgan Chase (JPM), a top global financial services provider, has a PBR of about 1.94. Ford (F) has a PBR of only 1.19, indicating market pessimism about traditional automakers. General Electric (GE) is even lower at 0.70, possibly indicating structural issues.

NAVPS vs Earnings Per Share (EPS): two perspectives in investment logic

When choosing stocks, many people confuse these two indicators.

Earnings Per Share (EPS) = Net Profit / Number of Common Shares

The difference? Simply put, NAVPS reflects the asset stock, while EPS reflects the profit flow.

A company can have a high NAVPS (lots of assets) but low EPS (not profitable). Typical examples are traditional manufacturing companies with abundant assets but thin profits.

Conversely, tech companies may have low NAVPS but high EPS, earning a lot annually with fewer assets.

In investment strategies:

• Looking at NAVPS is mainly for value investing, seeking undervalued companies
• Looking at EPS is mainly for growth investing, seeking high-growth companies

Smart investors consider both indicators to find companies with solid assets that also generate profits.

How to find NAV data?

The most direct way is through the company’s financial reports. For example, a food company’s 2021 annual report shows net assets of 4.15 billion yuan, liabilities of 2.55 billion yuan, and 568 million shares outstanding, so NAVPS ≈ 2.8 yuan.

Financial websites and securities apps can directly provide this data, saving you the trouble of calculating manually.

Final advice

NAVPS is an important but not the only dimension for analyzing stocks. Investment decisions should be multi-layered:

• Use NAV to assess whether the company’s asset base is solid
• Use EPS to evaluate its profitability
• Consider industry characteristics to understand the importance of these indicators
• Use PBR to judge valuation levels

Chasing only high NAVPS can lead to value traps. The real investment opportunities often come from undervalued companies with strong fundamentals.