Definition:

Net Asset Value (NAV) per Share is a financial metric that represents the value of a single share of a fund or company, calculated by dividing the total net assets by the number of outstanding shares.

Formula:

NAV per Share = (Total Assets - Total Liabilities) / Number of Outstanding Shares

How to use the metric:

NAV per Share is used by investors to assess the value of a share in a mutual fund or investment company. It helps in determining whether a fund is overvalued or undervalued compared to its market price.

Limitations:

NAV per Share does not account for future growth potential or market conditions. It may not reflect the true market value of assets, especially in volatile markets. It also does not consider the fund's management fees or other operational costs.

Applies to:

This metric works best in the mutual fund and investment trust industries, where it is essential to evaluate the per-share value of pooled investments.

Doesn't apply to:

NAV per Share is less applicable to industries like technology or services, where intangible assets and growth potential play a significant role in valuation, and where the market value of assets can differ significantly from book value.

Summary:

Net Asset Value (NAV) per Share is a crucial metric for evaluating the per-share value of investment funds, providing insight into whether a fund is fairly valued. However, it has limitations in accounting for market conditions and future growth, making it less suitable for industries with significant intangible assets.