Net Asset Value (NAV) Method Explained with Examples
The NAV method is the simplest and most logical approach when the business is asset-heavy or not actively operational.
But don’t confuse simplicity with inaccuracy this method plays a vital role in legal, tax, and real estate-driven valuations.
What is the NAV Method?
It values a business based on the net worth of its assets after deducting liabilities.
Formula:
NAV = Total Assets – Total Liabilities
The value per share is then:
NAV ÷ Number of Outstanding Equity Shares
Where is NAV used most effectively?
Real estate-holding companies
Investment companies
Dormant or asset-heavy businesses
Group companies with inter-company loans
Businesses facing liquidation or restructuring
Why it's important:
Used in slump sales, mergers, and family settlements
Helps justify share value for buyback or capital reduction
Complies with Rule 11UA of the Income Tax Rules
Offers a conservative benchmark vs. DCF or market multiples
“When business income is uncertain, assets speak louder.”
Next Up: Discounted Cash Flow (DCF) Method When Projections Drive Value
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