What's A Valuation Unit?

(And Why Do I Care?)

A valuation unit (VU)is the same thing as a share in a mutual fund, but in this case, the mutual fund is the Loot Lizards investment club. (Treasurer's Note: The VU is a NAIC term, and I'm guessing that they use valuation unit to distinguish it from the stock shares.)

The value of a VU fluctuates from day to day and meeting to meeting the same way that shares in mutual funds do, which is to say, you add up all the assets, and then divide it by the number of shares. Voila! That's the value of your VU.

As an example, let's say that this month, the Loot Lizards have 200 valuation units and the following assets:

• $1000.00 in the bank
• 20 shares of stock A worth $50 each ($1000)
• 30 shares of stock B worth $40 each ($1200)

The value of the assets are $1000 + $1000 + $1200 = $3200. A valuation unit is worth $3200 / 200 units or $16.00

Then the Loot Lizards have a meeting. We take in $480 from our members. After the meeting, we've added $480 / $16 per VU = 30 more valuation units. The value of a single share will stay the same, even though we added money. The Loot Lizards now have 230 VUs and the following assets:

• $1480.00 in the bank (The $1000 we started with + $480 new money)
• 20 shares of stock A worth $50 each ($1000)
• 30 shares of stock B worth $40 each ($1200)

At the meeting, we voted to buy 20 shares of company C. We pay $24 per share (or $480) of our cash for the new shares, which leaves us with the following assets:

• $1000.00 in the bank
• 20 shares of stock A worth $50 each ($1000)
• 30 shares of stock B worth $40 each ($1200)
• 20 shares of stock C worth $24 each ($480)

A month goes by, another meeting rolls around, and it's time to calculate what a valuation unit is worth. When we go to get stock prices, we discover that all of our stocks have gone down. Company A is being sued by a moviegoer who was trapped for two hours in spilled Coke and Jujubes. (The moviegoer is also suing the fire department who took 45 minutes to get there and the parents of some four year olds who made fun of his predicament. The manager of the theater says that the moviegoer did this on purpose to sue for damages and thinks the four year olds were on the right track.) Company B has been leaking toxic waste into a nearby Dairy Queen, and has to pay for the clean up. Company C has elected Barney the Dinosaur as its new CEO and is rumored to be in the early stages of bankruptcy proceedings. We still have 230 valuation units and the following assets:

• $1000.00 in the bank
• 20 shares of stock A worth $40 each ($800)
• 30 shares of stock B worth $24 each ($720)
• 20 shares of stock C worth $12 each ($240)

The assets of the club are 1000 + 800 + 720 + 240 = $2760, which when you divide that by the 230 VUS, which yields $2760 / 230 VUs = $12.00 / VU.