The Value Chronicles Episode 4 – Net Asset Value
The first step is to figure out what a company or crypto is currently worth. A relatively easy way is to use the Net Asset Value or NAV. The formula is,
Formulas are hard, explain NAV to me
So what exactly does this ratio mean? Simply it means that if you have a $100 000 loan and the company only owns a building worth $100 000, then the company is worth $0.
If you divide this by the 100 000 shares outstanding, the value per share is $0. The company becomes worth more as the value of the assets in the company start exceeding the debts.
If the building was worth $300 000 with a $100 000 loan on it, then the company is worth $200 000. There are still a 100 000 shares in the company and each share would be worth $2.
You could use the formula above to calculate the values like so,
Assets, smashets. What does that matter in crypto
I have used a building as an example of an asset, but income streams can also be classified as an asset. This key fact allows the definition of assets in NAV to be adapted to crypto. Most of the current crypto’s charge transaction fees and it is this income stream that allows an initial estimate of value.
Translating the liabilities to crypto
There are costs to running a mining node and these costs are a liability stream, this would include buying mining equipment, electricity and maintenance as an example. In the future when I calculate this ratio I will detail all the input costs to crypto as well as a difficulty inclusion.
No share concept in crypto, think again
In crypto you can think of the number of coins issued as the name of shares outstanding. Every time the reward is given out the crypto issues more shares or in stocks, makes a rights issue. This dilutes the value of your holding over time, but as crypto has a cap, this will eventually stop. In some cases all the coins are already issued and this feature does not exist.
I hope you enjoyed the instalment, till next time
Tinus
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