Before you start
Read a BDC filing in order: four statements and the investment schedule, Non-accruals at cost and fair value: read the exposure and the mark
- Calculate a signed premium or discount with NAV as denominator.
- Separate a discount from the return needed to reach NAV.
- Identify the effects of valuation changes and share transactions.
NAV is a residual measured at a particular date
Common net asset value starts with the relevant assets and subtracts liabilities and other claims ahead of common shareholders on the disclosed basis. NAV per share then uses the applicable common-share count. Portfolio investments may depend on valuation judgments because they do not trade continuously in a deep market. A reported NAV is therefore a dated accounting measure rather than a standing offer to buy a shareholder's stock at that amount. Read the valuation process and the definition of common net assets, especially when preferred securities, subsidiaries or other claims complicate the residual.
Synthetic: a 10% discount requires an 11.11% price rise to close
An invented common NAV is 20 per share and the entered market price is 18. Price/NAV is 0.9× and the signed discount is −10%. Reaching an unchanged NAV of 20 from price 18 would require a price rise of 2/18 = 11.1111%, before distributions and costs. If NAV instead falls to 16 and price stays at 18, the same price is now a 12.5% premium. Neither calculation predicts a future price. Record the source date for each input, not merely the day the ratio was typed into a calculator.
Market price and NAV can move for different reasons
A listed share's price reflects market trading at its observation time. NAV reflects the underlying measured assets and liabilities at a reporting date, often earlier. Price divided by NAV is useful only after those dates, share classes and currencies are stated. A discount can reflect expectations about credit losses, expenses, distributions, management or liquidity; it does not identify which explanation is correct. A premium is not automatically an error either. The analytical task is to compare possible explanations with evidence rather than turn the distance from NAV into a mechanical buy or sell signal.
The discount percentage is not the upside percentage
The signed premium or discount uses NAV as its denominator: price/NAV minus one. The return from the current price to a future price uses the current investment cost instead. Even if future NAV were unchanged and the market later traded exactly at it, these percentages would differ. Actual returns also depend on distributions, fees, taxes and changes in NAV during the holding period. Do not add an annualized distribution yield to a discount as if both represented separate guaranteed gains. A distribution can reduce net assets while transferring value to the shareholder.
Capital transactions can change the per-share result
New equity increases cash and shares at the same time. Whether it increases or decreases NAV per existing share depends on net proceeds per new share relative to the pre-transaction NAV, with timing and transaction costs included. Repurchases create another set of effects and consume liquidity. A larger total net-asset base does not establish accretion per share. Keep transaction math separate from expected future investment returns on the proceeds, and read any applicable issuance restrictions in the actual filing. The worksheet here describes a ratio; it does not decide whether an offering is legally permitted.
Test your reasoning
A fictional BDC has equity 1,000 and 50 shares, so NAV is 20. It issues 10 shares for net proceeds of 180. What happens?
Reveal the worked answer
Equity becomes 1,180 and shares become 60, giving NAV of 19.6667. Total equity rose, but NAV per share fell because net proceeds per new share were below the original 20.
A common mistake
Calling a 10% discount a guaranteed 10% gain, or confusing total net-asset growth with NAV-per-share accretion.
What to check in the disclosures
- Use common NAV and the correct share class.
- Retain NAV and market-price observation dates separately.
- Include issuance or repurchase costs in per-share bridges.
- Read valuation assumptions and later credit events.
Check your understanding
Sources & scope
US BDC education. Examples are hypothetical unless expressly attributed. Filing dates, contractual definitions and tax rules matter. An issuer source describes that issuer; it is not evidence that every BDC uses the same policy.
- Investor.gov: Publicly Traded Business Development Companies — investor bulletin ↗
- Horizon Technology Finance 2025 financial highlights: tax/GAAP and spillover explanation, footnote 1 ↗
- Ares Capital original 2025 Form 10-K: historical definitions, not current issuer data; check amendments and later filings ↗
Educational material, not a recommendation or personalized investment advice. Source and correction policy.