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Thread: NTA and NAV

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    Default NTA and NAV

    Can someone please help me get my head around these, what the difference is between them and which one is the most important one to look at/consider for someone like me?

    I have googled but still not getting it. I need a beginner’s explanation please.

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    Quote Originally Posted by justakiwi View Post
    Can someone please help me get my head around these, what the difference is between them and which one is the most important one to look at/consider for someone like me?

    I have googled but still not getting it. I need a beginner’s explanation please.
    NTA = net tangible asset value. NAV = net asset value (including both tangible and intangible assets)

    Assets can be split into two distinct groups: tangible and intangible.

    1/ An intangible asset is created when a company buys an asset for ostensibly more than it is 'worth' on someone else's books. The asset then comes onto the acquirer's book, normally with a 'tangible componrent' (equivalent to what a second disinterested buyer might pay for that asset at auction) and an 'intangible component' (which makes up the difference in dollar terms to the price that the acquirer actually paid).
    2/ There is a second class of unrelated intangible assets: computer software.

    To calculate the NTA given the NAV, you must subtract the total intangible assets from the NAV.

    HTH

    SNOOPY
    To be free or not to be free. That is the cash-flow question....

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    Thanks for that. So that NTA is the more important one to consider if looking to buy?

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    Quote Originally Posted by justakiwi View Post
    Thanks for that. So that NTA is the more important one to consider if looking to buy?
    I think of NTA as a proxy for downside risk. It answers the question:

    "If everything turns to custard, what is the likely price that a company receiver might get if all the assets were sold and the debt was repaid?"

    Nevertheless, it isn't quite that simple. If a company is in a specialised industry, for example, they may have a lot of specialised equipment for which they have paid cash. These would be recorded as 'tangible assets'. But in a fire sale there may not be a buyer for these assets. Or maybe there will be a buyer, but they will offer a price well below book value. So in a case like this, to use NTA as a proxy for risk might be misleading.

    OTOH, the reason why an acquiring company might pay more than 'book value' for an asset (and hence create an intangible asset on the acquirer's books) is that they expect to earn well above average profits in the future from these assets. IOW the business unit just bought is inherently very good. In accounting practice, it used to be the rule that intangible assets were automatically depreciated over a lengthy time period. However, a few years ago this convention was changed so that intangible assets (but not software) now have an indefinite life. If a company with intangible assets gets into trouble, it would not be uncommon to write down any intangible assets (and maybe some tangible assets) 'on the books' to some extent. But instead it might be a well performing division of the company in trouble is sold off to 'balance the books' at a premium to the intangible asset value recorded. So it isn't automatic that an intangible asset is of lower quality than a tangible asset.

    SNOOPY
    Last edited by Snoopy; 03-07-2019 at 07:45 PM.
    To be free or not to be free. That is the cash-flow question....

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    Very helpful. Thank you

    Quote Originally Posted by Snoopy View Post
    I think of NTA as a proxy for downside risk. It answers the question:

    "If everything turns to custard, what is the likely price that a company receiver might get if all the assets were sold and the debt was repaid?"

    Nevertheless, it isn't quite that simple. If a company is in a specialised industry, for example, they may have a lot of specialised equipment for which they have paid cash. These would be recorded as 'tangible assets'. But in a fire sale there may not be a buyer for these assets. Or maybe there will be a buyer, but they will offer a price well below book value. So in a case like this, to use NTA as a proxy for risk might be misleading.

    OTOH, the reason why an acquiring company might pay more than 'book value' for an asset (and hence create an intangible asset on the acquirer's books) is that they expect to earn well above average profits in the future from these assets. IOW the business unit just bought is inherently very good. In accounting practice, it used to be the rule that intangible assets were automatically depreciated over a lengthy time period. However, a few years ago this convention was changed so that intangible assets now have an indefinite life. If a company with intangible assets gets into trouble, it would not be uncommon to write down any intangible assets (and maybe some tangible assets) 'on the books' to some extent. But instead it might be a well performing division of the company in trouble is sold off to 'balance the books' at a premium to the intangible asset value recorded. So it isn't automatic that an intangible asset is of lower quality than a tangible asset.

    SNOOPY

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    NAV or Net Asset Value is generally used for valuing ETFs, mutual funds, investment trusts etc. formula is as snoops outlined

    In respect of a company NAV is the same as Shareholder Equity and is often described as Book Value and leads to the Price to Book ratio you often see.... ie Share Price / Book Value per share

    If that ratio is greater than 1 (like the company Market Capitalisation is greater than Shareholder) it’s an indication that investors (or market per se) expect the company to make excessive profits over its cost of capital.
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”

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    OK so do you want an NTA that is equal to or higher than the share/unit price?

    Using USF as an example - NTA yesterday was $8.15634. Share price today was up to $8.19. So is that an indication that it is currently over priced?

    Or or am I still not getting it?

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    Quote Originally Posted by justakiwi View Post
    OK so do you want an NTA that is equal to or higher than the share/unit price?

    Using USF as an example - NTA yesterday was $8.15634. Share price today was up to $8.19. So is that an indication that it is currently over priced?

    Or or am I still not getting it?
    So you into EFT and such things, rather than specific companies.

    With the likes of USF the price and NTA should be about the same - those prices you mentioned says you buying $8.15 of stuff for $8.19 ......over priced, maybe or maybe not.
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”

    –Benjamin Graham”

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    Got it. Thanks

    Quote Originally Posted by winner69 View Post
    So you into EFT and such things, rather than specific companies.

    With the likes of USF the price and NTA should be about the same - those prices you mentioned says you buying $8.15 of stuff for $8.19 ......over priced, maybe or maybe not.

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