Net Current Asset Value Per Share, or NCAVPS, was developed in the 1950s by Benjamin Graham, the father of Value Investing and Warren Buffett’s mentor. NCAVPS is simply the Current Assets of a company minus its Total Liabilities (including Preferred Stock) divided by the number of Outstanding Shares. Put another way, it is the Liquidation Value of the company.

With NCAVPS, investors can establish an independent value for the company and compare it to the current trading price. When a company’s stock is trading at a price that is lower than the calculated NCAVPS, the stock is considered to be undervalued.

The calculation of NCAVPS helps investors identify stocks that may be trading at a bargain price. This allows an investor to purchase a company’s stock at a price that is lower than the company’s intrinsic value, which may result in a higher return on investment. This is one of Graham’s most fundamental principles of investing, which he dubbed the “margin of safety.”

In addition to the value aspect, NCAVPS can also be used to provide insight into a company’s liquidity. A company’s current assets are typically more liquid than their assets, which means that NCAVPS can be used to check the short-term liquidity of a company.

Overall, NCAVPS is a powerful metric that investors should use and embrace. Identifying companies with low net current asset values compared to the current price of their shares can offer investors the potential for higher value investing returns. As with all investments, investors should exercise caution and perform thorough research before buying a stock.