Price to Net Net Working Capital

Price to Net Net Working Capital compares the Price to Benjamin Graham's valuation measure, Net Net Working Capital. This is defined as Cash + Short Term Marketable Investments + Accounts Receivable * 75% + Inventory * 50% of Total Liabilities.

It tries to value a company against it’s “fire sale” value - i.e., if the company were liquidated today, what could the assets be sold for? Graham theorised that if you were able to buy a company for less than this value, you couldn’t help but make money!

This may have been true in the past but such deep value strategies have been shown to be far less effective in modern times compared to when Graham was investing. This is likely because such opportunities are more readily identified and so do not last long.

As with all of our Balance Sheet Ratios, this will be based on the latest financial statements (interim or annual) but it's always important to be aware of any post-balance sheet events that may have reduced the cash balance - an acquisition or a buyback, for example. The market may be pricing in something that has not been captured by the snapshot given in the latest financial statements.