Most investors who look at classic Graham style cigar-butt stocks are familiar with Net Current Asset Value (NCAV). It is quick, simple, and it works.

A little less well known is the liquidation value or book-liquidation value method set out in the balance sheet analysis section of Security Analysis. This is probably my favorite valuation model. It is a little more involved than NCAV, but I believe it is more precise and lets you act on more opportunities, because it looks at the full balance sheet and applies more realistic haircuts to each asset category.

In short, the liquidation value formula works like this. You take each line below, apply the stated percentage to its book value, add them up, then subtract total liabilities.

• Cash assets: 100%

• Receivables: about 80%

• Inventory: about 66.7%

• Long term assets (property, plant, equipment etc.): about 15%

Liquidation value per share is then this adjusted asset total divided by the number of shares outstanding.