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Enterprise Value (EV)

A Company’s Enterprise Value (EV) calculates the market value of Total Capital employed. Total Net Debt is added to Market Capitalisation, as quoted on the Stock Market.

The concept of a Company’s Enterprise Value (EV) does not distinguish between Debt and Equity. EV looks at the Total Market Value of Capital employed, in productive assets. The Company’s Market Cap is added to Debt, assets. Such cash and cash equivalents are non-productive assets and deducted to have a Net Debt figure. EV could answer the question, “how much capital would be required to run this company” or possibly “how much would it cost to Buy this company”. Then the objective would be to determine the most cost-efficient capital structure, the cost of capital via the WACC calculation. Enterprise Value, can substitute for Stock Price as the numerator for a series of EV ratios including EV to Sales, EV to EBITDA, EV to Net Earnings and used to measure a Company’s operating performance.

 

Accounting
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Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

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