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Published byHillary Spencer Modified over 9 years ago
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Enterprise Value
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What is Enterprise Value? –Market Value of Equity plus debt minus cash and investments Why is it used? –To more accurately reflect the value of a company at any one time rather than market capitalization (share price times shares outstanding)
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Enterprise Value What’s the point? –EV measures what it would actually cost to purchase an entire company. It is the real, economic value of the company.
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Enterprise Value Example: Company A: Equity ValueDebt ValueCash & Investments $20 million$50 million$2 million Price paid for stock: $20 million. Real price paid for the entire company: $68 million You’re assuming a debt of $50 million, so that is an economic cost. The cash belongs to the new owners after the old equity holders are paid off.
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Enterprise Value Multiples EV/ –EBITDA, EBIT, Net Revenue, Net Income… How do they work? –The ratios measure profitability and revenue generating capability regardless of company size.
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Enterprise Value Multiples So…. –Companies can be compared to each other based on these multiples. –The lower the multiple, the more earnings you get for your money invested.
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Enterprise Value Multiples Viacom (as of Dec.31, 1999): –Market Cap: $42.6B (.709B shares times $60 per share) –Debt: $6.00B –Cash & Investments: $0.688B –Enterprise Value: $48 Billion EBITDA:$2.162B EBIT:$1.318B REVENUE:$12.86B
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Enterprise Value Multiples The implication is that Viacom is undervalued on a comparable company basis
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