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Here's my understanding:

Market Captilisation is the market value of all of a company's shares. Then this sounds like the market value of a company's equity.

NAV is Asset minus Liabilities. Wouldn't this sound also like the market value of a company's equity too?

What's am I missing that I don't see the difference between market cap and nav?

  • NAV is usually associated more with mutual funds where in the case of exchange-traded funds there can be a difference between the NAV/share and the trading price though I'm not sure this was intended with the question. – JB King Jan 19 '15 at 16:39
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At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa.

From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as "goodwill.")

Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future.

If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode.

  • I don't quite understand from the part that Market Cap is on future expectations. Since it's the value the market will pay today for the shares, how's that future? And does this mean that NAV is the value of equity today, and Market Cap is the value of equity in future? Sorry, I'm not a finance person here. More explanation on this will be great. Thanks! – xenon Jan 17 '15 at 13:29
  • I edited to add to my answer – JTP - Apologise to Monica Jan 17 '15 at 14:14
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NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value.

The market cap is share price times number of shares.

For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.

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I think the key concept here is future value. The NAV is essentially a book-keeping exercise- you add up all the assets and remove all the liabilities. For a public company this is spelled out in the balance sheet, and is generally listed at the bottom. I pulled a recent one from Cisco Systems (because I used to work there and know the numbers ;-) and you can see it here: roughly $56 billion... https://finance.yahoo.com/q/bs?s=CSCO+Balance+Sheet&annual Another way to think about it: In theory (and we know about this, right?) the NAV is what you would get if you liquidated the company instantaneously.

A definition I like to use for market cap is "the current assets, plus the perceived present value of all future earnings for the company"... so let's dissect that a little. The term "present value" is really important, because a million dollars today is worth more than a million dollars next year. A company expected to make a lot of money soon will be worth more (i.e. a higher market cap) than a company expected to make the same amount of money, but later. The "all future earnings" part is exactly what it sounds like. So again, following our cisco example, the current market cap is ~142 billion, which means that "the market" thinks they will earn about $85 billion over the life of the company (in present day dollars).

  • So you are saying that NAV = book value? – Weiwei Jan 19 '15 at 15:15
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    So in the most general sense, yes. But often, NAV is used to refer to underlying securities that make up a parent security. The common example is the "Net Asset Value" of a mutual fund: if you add up all the values of the components, you get the value of the parent. Book value is usually used to reference more concrete/tangible things on a companies balance sheet, where NAV is usually used in the context of a parent security. But we're definitely getting into softer differentiation and choice of words here. – ljwobker Jan 20 '15 at 21:58
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Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth.

NAV sounds very much like book value. It basically says "how much cash would we end up with if we sold everything the company owns, paid back all the debt, and closed down the business? " Since closing down the business is rarely a good idea, this underestimates the value of the business enormously. Take a hairdresser who owns nothing but a pair of scissors, but has a huge number of repeat customers, charges $200 for a haircut, and makes tons of money every year. The business has a huge value, but NAV = price of one pair of used scissors.

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