Net asset value
Simply, the NAV is the available shareholders funds divided by the number of shares in issue.
Shareholders funds are the net value of the company’s assets, cash and other current net assets, having deducted all debt, including bank loans, at their fair value and taking into account whether the company has outstanding convertible loan stocks, warrants, options and treasury shares. Current financial year income is included.
The calculation assumes that holders of convertibles have converted, warrants and options have exercised, and treasury shares are re-issued at the mid-market price, if dilution would occur i.e. if the NAV per share is higher than the price each of these shares or securities are 'in the money' (therefore could be 'exercised'). This is known as diluted shareholders funds or the diluted NAV (valuing shares held in treasury, on a mid price basis, when shares are trading at a discount, may differ from the actual discount re-issuance policies of individual companies).
Daily NAVs published on the company profile pages are estimated by Morningstar. Month-end actual fair value cum-income asset related data, supplied by Member companies, can be found in the monthly AIC Stats publication and on www.aicstats.co.uk.
Please note that whilst fair value NAVs including income are published on this site, the long term performance data is currently calculated using the diluted NAV with debt at par value and income excluded, except for the 1 year data, and the discrete data from 31 May 2008 which are calculated using the diluted NAV with debt at fair value and income included. This is due to a lack of historic cum income NAVs, with debt at fair value.
Morningstar NAV estimation procedure
The NAV estimation process uses the latest available NAV per share released to the stock exchange by the Company (actual NAV). From here, the Company's total assets are back calculated and split into constituent components based on the latest asset allocation data published by the Company. The constituent components are moved in line with relevant indices to produce an estimated current total asset value, from which the estimated NAV is calculated. Generally, all listed investments within the Company's portfolio are moved in line with indices to create the latest NAV estimate, fixed interest holdings, direct property and unlisted equity holdings being the exception.
When estimating the NAV of a Company, the procedure will take into account whether or not the latest published NAV (actual NAV) is diluted or undiluted for warrants and convertibles to create an undiluted actual NAV or multiply the undiluted number of shares to produce an undiluted net asset figure, taking into account the prior charges, currency and index movements, diluting for any warrants and convertibles in issue to create a diluted estimated NAV.
It is important to note, that the NAV estimation figures will be affected by capital changes (increase or decrease in the number of shares in issue), treasury shares (whether the Company is able to re-issue at a discount or premium), prior charges in other currencies or indices requiring the prior charge to be moved in line with the relevant exchange rate, whether the Company published cum-income or ex-income NAVs, sales/third party transactions that would create an uplift in the NAV and debt at fair value (Company's debt can be valued at fait or par value, where there is a difference between the two funds will usually publish actual NAVs on both bases) and dividends. All of the mentioned components are taken into account when calculating the estimated NAV of a Company.
Split capital trusts
The estimation process for calculating the total assets of split capital trusts is similar to that for conventional trusts (as listed above), using the latest actual NAV of the residual capital share and adding on any prior charges (in the form of bank loans or other share classes). The estimated NAVs of the other share classes are calculated based on the ranking system of a split capital structure (bank loans, zero dividends preference shares, income shares, ordinary income shares and capital shares) and the NAV formulae relevant to that share class. Please note that Morningstar do not estimate fair value NAVs for individual split capital share classes.
Alternatives and Unlisteds
Venture Capital Trusts - due to the unlisted nature of VCT portfolios and the fact they invest in very small companies, no attempt is made to estimate the market value of the portfolio. The only adjustment to the latest actual NAV is where portfolio realisations have occurred resulting in a movement to the NAV; in this instance a new NAV would be forecast based on the last actual NAV and amended with reference to the effect of the transaction and dated as at the transaction date. Adjustments will also be made for capital changes (allotments, repurchases and tender offers) and for treasury shares.
Property - no attempt is made to estimate the market value of investments in direct property. The estimated NAV is moved in line with currency changes and adjusted for any realisations.
Private Equity - no attempt is made to estimate the market value of investments in the unlisted part of a Private Equity company's portfolio. However, if they portfolio has any listed investments, these will be tracked using an allocated company index. The estimated NAV is also moved in line with currency changes and where portfolio realisations have occurred resulting in a movement in the NAV.
Hedge Funds - no attempt is made to estimate the market value of investments. NAVs are not estimated; instead the last actual NAV is kept constant.
