Want to know what an entire company is worth? You need to work out its enterprise value

Julie Brownlee, Fsp Invest, 19 Sep. 2014

Tags: enterprise value, ev, what is enterprise value, company value, value of a company, market capitalisation



When you think about the value of a company, you might think it’s just a case of looking at its market capitalisation. That is, multiply the number of shares outstanding by the current share price.

But the market capitalisation just gives you the value of the equity of a company. It doesn’t include other factors.

To understand the value of a company as a whole, you need to calculate the enterprise value.

So what is the enterprise value? And how can you calculate the enterprise value?

Let’s take a closer look…



What is the enterprise value?


Unlike the market capitalisation, the enterprise value (EV) is the value of a company as a whole, not just its equity.

In other words, the enterprise value is what you’d pay for the whole company if you bought it outright. This also means you’d take on the company’s debts.


How to calculate a company’s enterprise value


To calculate the enterprise value you firstly need the company’s market capitalisation. You can work this out by multiplying the number of shares in circulation by the current share price.

To the market capitalisation add in the net debt (that’s any debt minus any cash), minority interests and preferred shareholdings (if any).

If a company has a lot of cash, it may have a negative enterprise value.


Why analysts use enterprise value


Enterprise value can be a popular calculation among analysts because it’s a good way of weighing companies up.

For instance, by using enterprise value, it doesn’t matter how a company finances itself, you can easily compare similar companies with different financing structures.

Analysts may do this by using a measure such as EV/EBITDA. This compares a company’s enterprise valuation with its profits before depreciation.

So there you have it, why you need to work out a company’s enterprise value if you want to know what it’s really worth.

*********** Best seller *************

Collect payouts of R800, R1,600, R2,400 or more...

For once, government spending can end up in your hands!


It sounds incredible right! The government just paying out money that actually finds its way to citizens like this.

Click here to get your name on the list, and start receiving 'Special Payout' cheques of R800, R1,600, R2,400 or more...

*********************************


Related QA

Pic
d.c.heger asked:
MY QUESTION IS – I bought Bitcoin & Etherium some time ago – at first they grew nicely but now they are lower than what I paid for them. Should I [read more]
Published at 04 Apr. 2018 in: Investing 5 shares due to rocket 1 Answer
Pic
kavesh.maharaj.73 asked:
Hi Josh. I would like some advice on TFSA. I can get an interest rate of 7.8% nominal at a bank if I invest the R33k upfront in a fixed deposit [read more]
Published at 19 Mar. 2018 in: Investing Tax free savings vehicle 2 answers
Pic
kavesh.maharaj.73 asked:
Hi Josh Quantum wants to buy back shares from shall investors at what I think is a low price of around R3.86. You tipped the share in February [read more]
Published at 14 Mar. 2018 in: Investing Real wealth 5 answers
Pic
elizastrydom asked:
Hi Timon I am interested in registering for your Red Hot Storm Trader service. I am already a Red Hot Penny Shares investor. My question is [read more]
Published at 28 Feb. 2018 in: Investing Trading platform and broker 1 Answer
Pic
ManuE asked:
I have an interest in investing in Bitcoin, I just don't know how. If I buy Bitcoin with R15 000, how much can make (Return On Investment)? [read more]
Published at 25 Feb. 2018 in: Investing Investment 1 Answer

Related articles:


Latest:

Comments
0 comments



 
 


Youtube Twitter Facebook

Connect with us:    

POPULAR TOPICS
  • Accelerated Investor
  • Accessories