1. Investment Banking Bootcamp: Week 4 – Equity and Enterprise Value
Fall 2018
[whoever is presenting]

2. Agenda I. Equity Value II. Enterprise Value
III. Equity Value <--> Enterprise Value
IV. How Events Impact Equity and Enterprise Value
V. Metrics and Multiples
VI. Practice Questions
Please take notes and ask questions throughout. Decks will be available on our website.

3. I. Equity Value

4. What Is Equity Value?
Basic definition: Also known as “market cap” or “market value,” equity value is the value of all assets to equity shareholders
Formula: Share price * # of fully diluted shares outstanding

5. II. Enterprise Value

6. What Is Enterprise Value?
Basic definition: Enterprise value is the value of core business assets to all investors
Core business asset: essential to the production of your product or service; without asset, cannot generate revenue
Cash is NOT a core business asset
Independent of capital structure, meaning changes in debt and equity do not affect enterprise value
Ex: raising debt has no impact

7. III. Equity Value < -- > Enterprise Value

8. Relationship between Equity and Enterprise Value
Equity Value
Plus: Total Debt
Plus: Preferred Stock
Plus: Noncontrolling Interest
Less: Cash / Cash Equivalents
= Enterprise Value
Value to debt investors, preferred investors and noncontrolling interest investors
Non-core business asset

9. Debt & preferred investors get paid here
Continued…
As you move down the Income Statement, you start eliminating different investor groups as they receive their payment
Net sales
COGS
Gross Profit
SG&A Expenses
Operating income
Interest (Expense) income, net
Other expenses
Net income
Debt & preferred investors get paid here
“Other expenses” are non-core, so income following this iline items corresponds to equity value

10. IV. How Events Impact Equity and Enterprise Value

11. How Events Affect Equity and Enterprise Value
Issuing New Shares
Equity Value increases
Enterprise Value stays the same because the increase in cash from shares cancels out the increase in Equity Value
Remember that EV = Equity Value – cash + debt + preferred + noncontrolling
Issuing Dividends
Equity Value decreases
Enterprise Value stays the same because decrease in cash cancels out the decrease in Equity Value
Raising Debt
Neither Equity nor Enterprise Value changes
Raising $200M of Debt to Buy $200M Company
1. Raising debt won’t impact either
2. Buying $200M company will increase EV by $200M

12. V. Metrics and Multiples

13. Common Metrics and Multiples
Metrics that represent ONLY equity investors pair with Equity Value
Metrics that represent ALL investors pair with Enterprise Value
Used to determine whether a company is under / overvalued by comparing multiple to other comparables
Ignores individual countries’ taxation policies
EV/ EBITDA or EV/EBIT
Same idea as EV / EBITDA
Need to compare several multiples for accurate comparables valuation
EV/Revenue
Unlevered FCF is FCF pre-debt interest payments
EV/Unlevered FCF
Equity Value is paired with Net Income because Net Income is what’s available to equity investors
Equity Value/Net Income
Levered FCF is post-debt interest payments
Equity Value/Levered FCF

14. V. Practice