Just read an article on Gurufocus: http://www.gurufocus.com/news.php?id=877 that talks about Benjamin Graham's "net-net" investment strategy in 1979, and Joel Greenblatt's analysis of it back in 1981.
Graham's rough liquidation value (net-net) estimate:
"Current Assets" (cash, accounts receivable, inventory, etc.)
Less: "Current Liabilities" (short term debt, accounts payable, etc.)
Less: "Long Term Liabilities" (long term debt, capitalized leases, etc.)
Less: "Preferred Stock" (claim on corporate assets before common stock)
Divided by: Total Shares Outstanding
EQUALS "Liquidating Value Per Share"
Greenblatt did a study using 6 years of historical data (1972-1978) with the following 2 conditions:
- Stocks that have shown a loss over the last 12 months, were not considered
- Stocks were sold after 100% or 2 years (whichever came first)
The screen that worked best was
- Price / Liquidating Value <= 0.85
- Price / Earnings <= 5
which returned an annually compounded rate of 42.2% (before transaction costs).
Conclusion: You don't find such bargains (companies selling for less than net working capital) anymore =)