NCAV per Share (short for Net Current Asset Value per Share) is a powerful, ultra-conservative metric used by value investing purists to find deeply undervalued stocks. Championed by the legendary Benjamin Graham, this calculation aims to determine a company's rock-bottom liquidation value. The logic is beautifully simple: what would a company be worth if it shut down its operations today, sold off all its short-term assets like cash and inventory, and used the proceeds to pay off all its debts, both short-term and long-term? The leftover value, the NCAV, is considered a firm's “bare bones” worth. By dividing this by the number of Shares Outstanding, we get the NCAV per Share. If you can buy a stock for significantly less than this figure, Graham argued, you've found a bargain with a tremendous margin of safety. You're essentially buying the company's most liquid assets for a discount and getting its long-term assets, like factories and brand names, for free.
Calculating the NCAV per Share is a straightforward process that requires digging into a company's balance sheet. It's a fantastic exercise for any investor looking to move beyond simple price charts.
The formula strips a company down to its most basic components, ignoring pie-in-the-sky growth projections and focusing only on the tangible assets on hand. NCAV per Share = (Current Assets - Total Liabilities) / Shares Outstanding It's crucial to note that we subtract Total Liabilities, not just current liabilities. This is a key difference from the Net Working Capital calculation and is what makes the NCAV formula so conservative.
Let's imagine a fictional company, “Forgotten Gadgets Inc.,” which has fallen on hard times. An investor wants to see if it's a potential bargain.
If Forgotten Gadgets Inc. is currently trading at $0.65 per share, it's trading at a 35% discount to its NCAV per Share. According to Graham, this is a prime candidate for further investigation.
This metric isn't just a quaint historical formula; it's the bedrock of a specific, highly effective investment strategy known as “net-net” investing.
Buying a stock for less than its NCAV per Share is like buying a dollar for 60 cents. The discount itself provides a massive cushion against errors in judgment or further business deterioration. Benjamin Graham's rule of thumb was to only buy stocks trading at or below two-thirds (66.7%) of their NCAV per Share. This disciplined approach ensures that even if the company's situation worsens slightly, the investment is still likely to be profitable. The value is so compelling that you don't need the business to perform miracles; you just need the market to recognize the disconnect between price and value.
Warren Buffett, a student of Graham, famously described these types of investments using his cigar butt investing analogy. An NCAV stock is like a cigar butt found on the street—it's ugly, discarded, and nobody wants it, but it has one good, free puff left in it. These companies are almost never glamorous growth stories. They are often in boring or declining industries, suffering from temporary setbacks, or simply ignored by the wider market. The appeal isn't in owning a great business forever, but in finding a statistical bargain that offers a quick, profitable “puff” as its price rises to reflect its liquidation value.
While the NCAV strategy sounds foolproof, it comes with its own set of risks. The market is usually cheap for a reason, and it's your job to figure out if that reason is temporary or terminal.
Not all current assets are created equal. A critical investor must look inside the “Current Assets” figure and assess its quality.
This is the most important question to ask. If a company is trading below its NCAV, you must investigate why. It could be a value trap—a company that is hemorrhaging cash so quickly that its NCAV is shrinking every quarter. The ideal “net-net” is a company with a stable or slowly growing NCAV that is cheap due to temporary, fixable problems or simple market neglect.
Because these are often risky, small-cap companies, any single one could fail or go bankrupt. Graham never advocated for putting all your money into one NCAV stock. Instead, he insisted on diversification. By purchasing a basket of 10 to 30 of these statistical bargains, you spread the risk. The profits from the winners are expected to more than cover the losses from the few that may fail, leading to excellent overall returns.