Net Assets per Share
This Net Asset Per Share also known as Book value per share is calculated by dividing the Net Assets or equity of a company divided by its outstanding shares. If your business is worth N1million and you have 100,000 shares in issue then your Net Asset per share is N10. It is a very important tool that can be used to determine the value of a company. Using the same example above, the share price of N50 basically means that you are valuing the company at 5x its net assets. In other words you are willing to pay a premium of five hundred percent of the company’s equity just to own a share of that company. It is important to note that the Net assets per share of a company relates to its past and does not take cognizance of the future value the company can create. This why share prices mostly trade at a premium to net assets per share and when it trades a discount investors often sees it as undervalued.