Net-Net Working Capital (also known as 'Net Current Asset Value' or NCAV) is a rock-bottom valuation metric pioneered by the father of value investing, Benjamin Graham. Imagine a company is going out of business. It sells off all its most liquid, short-term assets—the cash in the bank, the money customers owe it, and its products on the shelves. It then uses that cash to pay off every single one of its debts, from bank loans to supplier bills. The amount of cash left over after this hypothetical fire sale is the company's Net-Net Working Capital. Graham’s genius was to look for companies whose total stock market value was trading for less than this leftover cash figure. In essence, an investor could buy the entire company, liquidate its core operating assets to pay all its debts, and still have cash left over. This meant you were getting all the company's long-term assets—its factories, brands, and real estate—for absolutely free, creating an extraordinary margin of safety. This is the heart of what's often called cigar butt investing.
Why is this simple calculation so powerful? Because it completely ignores rosy projections about the future and focuses solely on the hard, tangible assets on the company's balance sheet right now. It’s a measure of value that is divorced from current earnings or market sentiment. A company trading as a “net-net” is priced so low that its value is based on its potential liquidation value alone. The market is essentially saying the company's ongoing operations and future prospects are worthless, or even a liability. For a disciplined value investor, this pessimism can be a huge opportunity. You aren't betting on a spectacular turnaround; you are simply betting that the assets are worth more than the price you are paying for the whole enterprise. It's the ultimate “heads I win, tails I don't lose much” scenario.
The beauty of the net-net formula lies in its brutal simplicity and conservatism. It's designed to give you the most pessimistic, yet realistic, view of a company's liquidation value.
The calculation is straightforward: Net-Net Working Capital = Current Assets - Total Liabilities Let's break down the two components:
Note: Graham himself was even more conservative, often applying a haircut to the last two items. For instance, he might only count 75% of receivables (in case some customers don't pay) and 50% of inventory (in case it has to be sold at a deep discount).
Once you have the Net-Net Working Capital figure, you compare it to the company's market capitalization (the total value of all its outstanding shares).
If a company's market cap is below its Net-Net Working Capital, you've found a potential net-net stock. Let's say Dunder Mifflin Paper Co. has:
If Dunder Mifflin's market capitalization is only $10 million, it's trading at a deep discount to its net-net value. For every $1 you invest, you are buying $1.50 of net liquid assets ($15m NNWC / $10m Market Cap). The company's brand, customer relationships, and paper-making equipment are essentially thrown in for free.
To use this on a per-share basis, the process is simple:
Graham suggested only buying stocks trading at a significant discount, typically at two-thirds (66%) of their NNWC per share or less. This provides an even greater margin of safety.
Finding a net-net can feel like striking gold, but remember: these stocks are cheap for a reason. They are often unloved, ignored, and associated with troubled businesses. Here are the key risks: