Premium/Discount to NAV

Premium/Discount to NAV: The premium/discount to NAV is the percentage difference between the share price and the per-share net asset value. If the share price is below per-share NTA, it is said to trade at a discount to NAV; if it is above NAV, it is said to trade at a premium to NAV. Net Asset Value is, similar to book value, is the value placed on all tangible assets of a company.

Premium/Discount = (Share price X 100/NAV) – 100

The more successful management is to consistently increase the value of a company’s assets, the more likely investors will be willing to pay a premium over the asset value today. Net asset value is not easy to calculate for most businesses, thus it is most commonly used only for unit trusts or property companies where the calculation is pretty straight forward.