What is NAV (Net Asset Value)? NAV is an entitys Asset less its Liability.

Net Asset Value may represent the value of the total equity, or it may be divided by the number of shares outstanding held by investors and, thereby, represent the net asset value per share. NAV is calculated from the latest audited Balance Sheet. Some point to kept in view while calculating NAV:If a New Bonus issue or fresh issue of equity capital is proposed it shall be taken in to account & the face value of fresh issue of equity capital will be added to the existing Net worth and resulting Net worth will be divided by enlarged equity capital base. Intangible Assets like Goodwill, Trade Marks, Copyrights is not taken while calculation. Revaluation of Fixed assets will not be taken in to account unless revaluation is taken nearly 15 years ago. Any reserve which has not been created out of genuine profit will not be taken in to account. Following liabilities will be taken in to account & will be deducted from total assets : 1. Arrears of preference dividend, unclaimed dividend, dividend not provided but proposed to be paid out of reserves 2. Miscellaneous exp which is not written off 3. Debit balance on P/L account 4. Arrears of depreciation 5. Provision made for bad and doubtful debt

Contingent liability are not taken in to account unless clarification from the company or auditor. If company is constantly following SLM of Depreciation, then dep. Provided for will be taken in to account while calculating NAV. If in preceding 5 Yrs comp. has switched over from WDV to SLM then WDV will be considered.

Profit Earning Capacity Value: Capitalization Rate As per the guidelines, "The Profit Earning Capacity Value" (PECV) will be calculated by capitalizing the average of the after tax profits at the following rates: (i) 15% in the case of manufacturing companies, (ii) 20% in the case of trading companies, and (iii) 17.5% in the case of 'intermediate' companies that is to say, companies whose turnover from trading activities is more than 40%, but less than 60% of their total turnover." The guidelines provide for relaxation of the normal capitalization rate only for a manufacturing company under the following circumstances: When the market price of its share is substantially above the average of NAV and PECV at 15% capitalization. Where a company has a "high profitability rate as revealed by the percentage of after tax profits to the equity capital of the company." "Where the company has diversified its activities and is a multi unit company as a result of which it would be in a position to sustain its overall profits even if anyone part of its operations runs into difficulties. In such cases capitalization rate of 15% could be liberalized up to a maximum of 12% . Provision for Taxation; 1. Public limited company: Provision for taxation will be assumed at the current statutory under the income tax act. 2. Tea companies: 70% on 40% of their profit and on the remaining 60% of their profit. 3. For Branches: tax @ 73.5% and in case of converting themselves in public or Pvt. Ltd. Company, provision for Taxation will be 70%. Average Profits: 1. Check that there is no window dressing.

2. Average of profits will be done for latest 3 yrs. In some cases 5 yrs ex. Tea Industry. 3. Average will be calculated on the basis of simple arithmetic average. 4. If business has sustained losses in all 3 yr or latest 2 yrs. Then PECV will be Nil. Treatment of Profitability of fresh issue of capital: Case: Expansion or for new project 1/2 x Fresh capital/Existing Net worth x existing profits after tax This will be added to existing profit after tax and total will be divided by the enlarged capital to get maintainable earning per share.