Benjamin Graham defines Net Current Asset Value (NCAV) as:
Net Current Asset Value (NCAV) = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities
In calculating the Net Current Asset Value (NCAV), Benjamin Graham assumed that a companys accounts receivable is only worth 75% its value, its inventory is only worth 50% of its value, but its liabilities have to be paid in full. This is a conservative way of estimating the companys value.
One research study, covering the years 1970 through 1983 showed that portfolios picked at the beginning of each year, and held for one year, returned 29.4 percent, on average, over the 13-year period, compared to 11.5 percent for the S&P 500 Index. Other studies of Grahams strategy produced similar results.
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