IS NET ASSET VALUE DEFECTIVE?

Abstract

In an attempt to determine whether Net Asset Value (NAV) is defective as a performance measure, this report studies how the NAV is subjected to inconsistencies. Measures to liberalize and restructure Singapore’s financial sector led to the creation of more property companies. Following the implementation of these measures, interest in property stocks and REITs grew. This increased the utility of NAV as a barometer in assessing the fundamentals of property companies.

Asset values are measured differently when they fall under different financial reporting standards. The lack of clear benchmarks makes the distinction between different property types arbitrary. The evolution of financial reporting standards makes the use of the NAV difficult.

The analysis of financial reports showed that companies can be selective when adopting and implementing financial standards. The examination of restated NAV give mixed results on whether reclassifying properties causes the NAV of listed property companies to change. It was also found that changes to other financial reporting standards can cause the NAV to vary. These issues subject the NAV to distortion and render the NAV a problematic indicator of firm performance.

A more structured accounting framework could allow better value recognition. This allows investors to make better projections and comparisons of property companies. This could also encourage property companies to provide better data for further research in the property market.