Definition
Net Current Asset Value Per Share (NCAVPS) is a financial metric devised by legendary investor Benjamin Graham. It is calculated by taking a company’s current assets, subtracting total liabilities (including preferred stock), and then dividing the result by the total number of shares outstanding. This metric provides insights into a company’s liquidity and overall financial health, thus helping investors identify potentially undervalued stocks.
$$ NCAVPS = \frac{Current Assets - (Total Liabilities + Preferred Stock)}{Shares Outstanding} $$
NCAVPS vs Book Value Per Share (BVPS) Comparison
| Feature |
NCAVPS |
BVPS |
| Calculation |
Current Assets minus total liabilities |
Total Assets minus total liabilities, divided by shares outstanding |
| Focus |
Short-term liquidity |
Long-term financial health |
| Ideal Use Case |
Identifying potential undervaluation |
Assessing the company’s overall equity viability |
| Investor Type |
Value investors looking for bargains |
General investors and stakeholders |
Examples
-
Calculate NCAVPS:
- If a company has current assets of $500,000, total liabilities of $300,000, and preferred stock of $50,000 with 10,000 shares outstanding, NCAVPS would be calculated as:
$$ NCAVPS = \frac{500,000 - (300,000 + 50,000)}{10,000} = \frac{150,000}{10,000} = 15 $$
-
Interpreting NCAVPS:
- If the calculated NCAVPS is $15 and the stock price is $10, the stock is potentially undervalued. Time to break out the confetti!
- Current Assets: Assets that are expected to be converted into cash within one year.
- Total Liabilities: The full amount of debts a company owes.
- Preferred Stock: A class of ownership in a corporation with a higher claim on assets and earnings than common stock.
Humorous Citations and Fun Facts
- Benjamin Graham said, “In the business world, the rearview mirror is always clearer than the windshield.” So keep those NCAVPS goggles on to see clearly!
- Did you know? Benjamin Graham is also known as the father of value investing. If he had been a chef, he probably would have valued his ingredients based on taste, not just market price! 🍽️
Frequently Asked Questions
Q1: Why is NCAVPS important for investors?
A1: It helps value investors determine if a stock is undervalued or overvalued, a bit like finding a diamond in a market full of cubic zirconias!
Q2: Can NCAVPS guarantee profitability?
A2: No, it doesn’t guarantee that a company will turn things around overnight, but it gives investors a fighting chance to stake out the bad boys really worth fighting for.
Q3: Is NCAVPS applicable to all types of companies?
A3: While it’s more commonly used for smaller companies or those in distress, any investor dedicated to deep-value analysis might benefit from it.
Online Resources for Further Learning
Test Your Knowledge: NCAVPS Quiz Time!
## What does NCAVPS stand for?
- [x] Net Current Asset Value Per Share
- [ ] Net Cash Available Per Store
- [ ] No Cash After Various Stockpiles
- [ ] Notable Capital Assets Visualized Securely
> **Explanation:** NCAVPS stands for Net Current Asset Value Per Share — a crucial metric for value investors.
## What is the main calculation behind NCAVPS?
- [ ] Current Assets + Total Liabilities
- [x] Current Assets - (Total Liabilities + Preferred Stock) / Shares Outstanding
- [ ] Total Assets - Current Liabilities
- [ ] Preferred Stock x Current Assets
> **Explanation:** The correct formula determines potential stock value via current assets after subtracting liabilities — not possible without noting that outstanding share count!
## If a company's NCAVPS is higher than its stock price, it generally indicates:
- [ ] Overvaluation
- [ ] Stroke of luck
- [ ] Undervaluation
- [x] Potential bargain
> **Explanation:** If NCAVPS exceeds the stock price, you’ve found a potential bargain! Investors rejoice! 🎉
## Which investor is credited with the introduction of NCAVPS?
- [ ] Warren Buffet
- [x] Benjamin Graham
- [ ] Peter Lynch
- [ ] Charlie Munger
> **Explanation:** Graham is indeed the man behind NCAVPS, a real pioneer for value investors!
## For a company to be considered a decent investment based on NCAVPS, its stock price should ideally be:
- [ ] Above NCAVPS
- [ ] Equal to NCAVPS
- [x] Below NCAVPS
- [ ] Nonexistent
> **Explanation:** An ideal stock investment happens when the price is below NCAVPS, signaling there's room to grow value!
## Which is subtracted when calculating NCAVPS?
- [x] Total Liabilities + Preferred Stock
- [ ] Current Assets only
- [ ] None of the above
- [ ] Undercooked Tax Liability
> **Explanation:** Liabilities aggregate with preferred stock give the true aftermath of what’s left for shareholders! 🧐
## What role does preferred stock play in NCAVPS calculation?
- [ ] It increases liabilities
- [x] It is included in total liabilities
- [ ] It should be ignored
- [ ] It magically becomes long-term assets
> **Explanation:** Preferred stock counts toward total liabilities reflecting real financial status—including all “preferred” baggage!
## When establishing NCAVPS, companies with more current assets relative to liabilities are often viewed as:
- [ ] Junk
- [ ] Overpriced
- [x] Financially stable
- [ ] Black sheep
> **Explanation:** Greater current assets over liabilities equals stability — and a good reason for happiness! 🎈
## What is the primary purpose of calculating NCAVPS?
- [ ] To improve ROI on personal assets
- [x] To find undervalued stocks
- [ ] To increase coffee sales during market changes
- [ ] Understand average ice cream prices
> **Explanation:** Delving into NCAVPS to seek undervaluation is the ultimate goal — even coffee doesn't impact this! ☕
## Can NCAVPS be used alone to make investment decisions?
- [ ] Yes, absolutely!
- [ ] Certainly!
- [x] No, it should be used alongside other valuation metrics
- [ ] If you like living on the edge!
> **Explanation:** Alone, NCAVPS is not enough; combine it with other metrics to ensure a safer investment allocation!
Thank you for diving into the world of NCAVPS! Remember, investing intelligently isn’t just about finding value, it’s about knowing where to look for it. 🕵️♂️ Happy investing!
