Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Net Realizable Value (NRV)

What it is:

The net realizable value (NRV) of an asset is the money a seller expects to receive for the sale of an asset after deducting the costs of selling or disposing of the asset.

How it works (Example):

Let's assume Company XYZ needs to get rid of a widget maker. It expects to sell the asset for $10,000. It must pay a broker $600 for help in the sale, $50 in legal paperwork costs and $200 to deliver the asset to the buyer. Thus, Company XYZ's net realizable value on the asset is:

$10,000 - $600 - $50 - $200 = $9,150

Analysts sometimes incorporate the future cash inflows associated with the assets and calculate the present value of the cash inflows and outflows in order to determine NRV.

Why it Matters:

NRV is utilized when using the lower of cost or market (LCM) method of inventory accounting. It is also used when trying to calculate how much of a company's accounts receivables are truly expected to turn into cash (that is, when determining bad debt expense).