NNWC valuation popularised by Benjamin Graham aims to give a margin of safety versus the likely liquidation proceeds.
NNWC is a highly conservative measure of value which Graham chose as being likely to represent a significant discount to the value that shareholder would receive in an actual event of liquidation. NCAV is Cash and Short Term Marketable Investments, plus Accounts Receivable * 75% + Inventory * 50% – Total Liabilities.
Liquidation Valuations - such as NNWC, NCAV and Tangible Book Value - estimate the amount of money that a company could quickly be sold for, if it were to go out of business. They are typically lower than fair market value. Companies which are seriously underperforming or in collapsing industries sometimes have a liquidation value exceeding market capitalization - in such a scenario, there may be an arbitrage opportunity to sell off the company's assets. However, it depends if the business is stable enough so that operating losses don't eat away the existing assets.
