(This article appeared first on The Stock Market Blueprint Blog.)
Here's a breakdown of the four best-ranked stocks on the Net-Net Working Capital (NNWC) screen.
NNWC is similar to the NCAV screen except it is more stringent. Graham knew that companies undergoing liquidation would not necessarily sell all current assets at book value.
In order to add a level of safety, he felt it beneficial to discount the accounts receivables and inventories when calculating current assets.
NNWC description
Like NCAV, NNWC finds stocks trading for less than the difference between current assets minus total liabilities, and no regard is given to the company’s long-term assets or future profits.
But where NCAV accounts for 100% of a company’s current assets, NNWC builds a larger margin of safety by discounting both receivables and inventory.
Liquidation value
To calculate the liquidation value of a stock using NNWC, the stock screen values a firm’s current assets at the following levels:
- Cash and cash equivalents: 100%.
- Accounts receivables: 75%.
- Inventories: 50%.
- Long-term assets: 0%.
Click here to learn more about the NNWC stock screen.
Top-ranked NNWC stocks
Here is a breakdown of five stocks with the lowest price to NNWC:
China Green Agriculture Inc. (CGA, Financial): Engages in the research, development, production, distribution and sale of various types of fertilizers and agricultural products.
- Cash and cash equivalents (100%): $108 million.
- Accounts receivables (75%): $111 million.
- Inventories (50%): $39.5 million.
- Total liabilities: $36 million.
- Total shares: 38 million.
- NNWC: $5.92.
- Price: $1.21 (closing price on Dec. 29).
- Price/NNWC: 20%.
Emerson Radio Corp. (MSN, Financial): Designs, sources, imports, markets and sells various houseware and consumer electronic products in the U.S. and internationally.
- Cash and cash equivalents (100%): $52 million.
- Accounts receivables (75%): $850,000.
- Inventories (50%): $2 million.
- Total liabilities: $3 million.
- Total shares: 27 million.
- NNWC: $1.93.
- Price: $1.01 (closing price on Dec. 29).
- Price/NNWC: 52%.
Richardson Electronics Ltd. (RELL, Financial): Provider of electron devices, customized display solutions and health care equipment businesses in North America, Asia Pacific, Europe and Latin America.
- Cash and cash equivalents (100%): $64 million.
- Accounts receivables (75%): $16.5 million.
- Inventories (50%): $22.5 million.
- Total liabilities: $22 million.
- Total shares: 11 million.
- NNWC: $7.53.
- Price: $6.21 (closing price on Dec. 29).
- Price/NNWC: 82%.
Support.com Inc. (SPRT, Financial): Provides cloud-based software and services primarily in North America.
- Cash and cash equivalents (100%): $54 million.
- Accounts receivables (75%): $7.5 million.
- Inventories (50%): $0 million.
- Total liabilities: $9 million.
- Total shares: 55 million.
- NNWC: 96 cents.
- Price: 82 cents (closing price on Dec. 29).
- Price/NNWC: 85%.
Disclosure:Â I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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