Value Investing News

Benjamin Graham use to invest in stocks trading below their net current asset value. These net-net opportunities almost went completely extinct, but you can still find some examples of these so called net-net working capital opportunities.

The standard equation to measure net current asset value is:

(Current Assets - Current Liabilities – Other Long Term Liabilities – Preferred Stock )

 Recently, I came across another version of the ncav equation in this Fool.com article. The equation there is:

Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities

 I think I remember seeing this latter equation somewhere else, but I can think of the exact reference. Did Graham also use this second equation? Which is the preferred formula?

I'm thinking of running a monthly net current asset value screen for Value Investing News for the Exclusives section. Any preference for which formula I should use? Should I restrict the list to stocks only selling at 2/3 of net current asset value? Should I add any additional filters to avoid value traps or liquidity issues? Share your thoughts below.