There are always plenty of numbers to evaluate when weighing up whether to buy a particular share.
Today I’m going to quickly review three figures for anyone thinking about investing in Aviva (LSE: AV) (NYSE: AV.US).
441p per share is the latest published net asset value per share for Aviva. While most companies are traditionally valued on a multiple of their profits or cash flow, insurers (and indeed most financial companies) tend to be analysed a little differently.
Very often, their net asset value (the sum of what they own less what they owe) is taken as a benchmark figure, which can then be compared against others in the industry to see which companies look cheap or expensive.
As an added complication, insurers often publish two different net asset values. The plain vanilla version, strictly according to accounting standards, tends to produce a lower figure.
Embedded Value, or in this instance the snappily named Market Consistent Embedded Value preferred by Aviva, is what we have quoted here. Not only does it tot up what the company owns now, but it also estimates the potential profits that might accrue from its various existing insurance policies.
Bonus tip — if you ever need to fall asleep fast, start reading the accounts of an insurance company. No one in the history of investing has ever managed to read them from back to front. Well, no one worth mentioning anyway.
Another figure that tends to be unique to insurance companies is combined operating ratio. Aviva’s was 96.2% for the six months to 30 June 2013.
This ratio is simply expenses divided by income, so a ratio of less than 100% indicates an underwriting profit, while a figure in excess of 100% indicates a loss.
This figure can be compared against the performance in previous periods, and against others in the insurance industry, although the mix of what a particular insurer covers (i.e. motor, home etc) may result in some underlying differences.
Alongside its results for 2012, Aviva made the following statement:
“While we appreciate the considerable progress that has been made on a number of fronts, we do not believe the overall situation of the group warrants bonuses for executive directors for 2012 or pay rises for 2013.”
That’s right, executive bonuses of zilch. Aviva seems to be performing rather better in 2013, so this parsimony may be short lived. But it’s an example that certain others in the financial sector (yes banks, I’m looking at you) might do well to follow.
So there you go, three numbers which may or may not have some bearing on whether you buy shares in Aviva.
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> Stuart does not own any share mentioned in this article.
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