Compta 3 - Enterprise Value, Valorisation et ratios

Question 1

What do Equity Value and Enterprise Value MEAN? Don’t explain how you calculate them – tell me what they mean!

So why do you look at both of them? Isn’t Enterprise Value always more accurate?

Answer 1

Equity value (valeur des capitaux propres) c’est la valeur des actifs de l’entreprise aux yeux des investisseurs en equity.

Enterprise values c’est la valeur des operations. (enterprise=/= entreprise). La valeur de l’actif economique. pour tous les investisseurs.Enterprise value c’est la valeur des actifs economique, des actifs necessaires pour maintenir les cash flows.

Les deux sont utiles, pour differents investisseurs. L’EV une quantite utile car elle m’est pas affecte par la structure de capital de l’entreprise, donc pour faire des comparaisons. Aussi pour faire une acquisition majoritaire de la compagnie on assume que l’on rembourse la dette…
Si on est un investisseur de equity, pour prendre positions minoriataires, par exemple un AM, on s’interesse au prix des shares, et donc a la valeur de l’equity.

Question 2

What’s the difference between Current Enterprise Value and Implied Enterprise Value?

Answer 2

Current c’est la valorisation d’apres le marche, implied c’est la valorisation d’apres nos propres analyses.
Si la compagnie est publique on trouve le current: Asset - non core assets + net debt
Implied on utilise des outils de valorisation: DCF, comparables, transactions.

Question 3

Why might a company’s Current Enterprise Value be different from its Implied Enterprise Value?

Answer 3

Value = discounted cash flows.
Donc si on a une differente opinion de la valeur des futurs CF ou du discount rate, on obtient une different valorisation

Question 4

Everyone knows how you move from Equity Value to Enterprise Value.
But WHY do you subtract Cash, add Debt, add Preferred Stock, and so on?

Answer 4

Enterprise value c’est la valeur des actifs economique, des actifs necessaires pour maintenir les cash flows.
Donc on enleve les actifs non essentiels (cash, investments) car on peu s’en debarasser.
Puis on rajoute les autres lignes d’equity ou de passy quand elles representent des groupes d’investisseurs (dette, prefered, capital lease)

Question 5

. Let’s say you’re about to buy a house using a $600K mortgage and a $200K down payment. What are the real-world analogies for Equity Value and Enterprise Value in this case

Answer 5

The “Enterprise Value” here is the $800K total value of the house, and it corresponds to just the “core value” of the house: The land, the foundation, the walls, rooms, etc.
The “Equity Value” is the $200K down payment you’re making, and it corresponds to everything above PLUS any “non-core” Assets you get along with the house: Random tools and garden supplies, lawn chairs, or anything else that you’re planning to sell immediately

Question 6

Can a company’s Equity Value ever be negative?

Answer 6

La valeur presente de la compagnie ne peut pas etre negative puisqu’elle aura toujours la forme: nbr share*price per share. En revanche:

• sur les etats financiers, l’equity peut descendre sous 0 par exemple si la compagnie accumule des pertes sur plusieurs periodes.
• notre valorisation, peut donner une estimation d’equity negative. par ce que l’on utilise nos propres assomptions

Question 7

Can a company’s Enterprise Value ever be negative?

Answer 7

Oui, par exemple, la compagnie pourrait avoir plus de cash que sa capitalisation boursiere. (current)
* find example for implied

Question 8

Why do financing-related events such as issuing Dividends or raising Debt not affect Enterprise Value?

Answer 8

Enterprise value, is the value of core business assets, to all investors. Tout ce qui n’affecte pas la capacite de la compagnie a maintenir ses operations ne change pas sa valeur. (all this in theory)
D’un point de vue compta. les dividendes sont du cash, (down up 300, cash down 300), debt (up 300, cash up 300)

Question 9

Let’s say you determine a company’s Implied Value with the cash flow formula: Company Value = Cash Flow / (Discount Rate – Cash Flow Growth Rate).
Will this give you a company’s Implied Equity Value or Implied Enterprise Value?

Answer 9

Unlevered FCF (CF to Firm) + wacc = EV
Levered FCF (CF to Equity inv) + Cost equity = EQV

Question 10

If financing-related events do not affect Enterprise Value, what DOES affect it?

Answer 10

Tout ce qui affecte les operations de l’entreprise, ses futurs cash flows. L’annonce d’un nouveau contrat, l’arrivee d’un competiteur.

Question 11

. If a company wins a major contract with a new customer, will ONLY Enterprise Value change? Or will Equity Value also change?

Answer 11

Both. La valeur d’equity est affecte par ET les changements d’operations ET les decisions de financement.

Question 12

Why does Enterprise Value NOT necessarily represent the “true cost” to acquire a company?

Answer 12

1. Buyer may not have to pay the debt (1%)
2. Buyer may not access the whole cash balance
3. Buyer usually pays a premium

Question 13

In theory, if Companies A and B are the same in all respects, but Company A is financed with 100% Equity, and Company B is financed with 50% Equity and 50% Debt, their Enterprise Values will be the same.
Why is this NOT true in reality?

Answer 13

1. because the wacc changes as the input of capital structure change (goldilock, debt first reduces overall cost, up until a point)
2. There’s an implied tax shield effect that must be taken into account.

Question 14

A company issues $200 million in new shares. How do Equity Value, Enterprise Value, EV / EBITDA, and P / E change?

Answer 14

EQV + 200
EV - r
EV/EBITDA - r
P/E - increase

Question 15

A company issues $200 million in new shares, but it will use $100 million from the proceeds to issue Dividends to shareholders. How do Equity Value, Enterprise Value, EV / EBITDA, and P / E change?

Answer 15

EQV + 100
EV - r
EV/EBITDA - r
P/E - increase

Question 16

A company issues $200 million in new shares and acquires another business for $100 million . How do Equity Value, Enterprise Value, EV / EBITDA, and P / E change?

Answer 16

EQV - Up 200
EV - up 100m
EV/EBITDA -r
P/e-r

Question 17

What if the company uses the $100 million to acquire an Asset rather than an entire company? (effect on EV/EBITDA)

Answer 17

the EV sera affecte si c’est un actif operationel. SI ca l’est alors le EV/EBITDA va augmenter, sinon il ne changera pas.

Question 18

Let’s say the company raises $200 million in Debt to acquire another company for a purchase price of $200 million. The other company’s Common Shareholders’ Equity is exactly $200 million. How does everything change? ( in the exact moment).

How is this scenario different if the purchase price is still $200 million, but the other company has only $100 million in Common Shareholders’ Equity?

Answer 18

EQV - r
EV - +200
EV- EBITDA increases
P/E same
///
add 100M goodwill
goodwill is core operational asset so nothing changes

Question 19

What happens to everything if a company issues $100 in Dividends?

Answer 19

EQV - down 100
EV - no change
EV/EBITDA - No change
P/E - Down.

Question 20

A company has a Current Equity Value of $200, $50 in Cash, and $100 in Debt. If the company spends $25 of its Cash balance to purchase PP&E, how does everything change?

Answer 20

EQV - No change
EV - Up 25 (conversion of noncore to core actif)
EV/EBITDA - up
P/E - r

Question 21

A company has excess Cash. What are the valuation implications if it uses that Cash to repurchase shares vs. repay Debt?

Answer 21

EQV - down / same
EV - same
EV/EBITDA - Same
P/e - down/same

Question 22

A CEO finds $100 of Cash on the street and adds it to the company’s bank account. How do Equity Value and Enterprise Value change?

Answer 22

EQV - up 100
EV - R
EV/EBITDA - R
P/E - Up

Question 23

A company issues a press release indicating that it expects its revenue to grow at 20% rather than its previous estimate of 10%. How does everything change?

Answer 23

EQV - Up (higher discounted cf)

EV - Up

Question 24

When there’s an operational change, how can you determine whether Equity Value or Enterprise Value will change by more?

Answer 24

1. in general EV changera plus car EV est affecte seulement pas les changement d’operation.
2. Refaire les modeles

Question 25

Will operational changes impact a company’s Current or Implied Enterprise Value by more?

Answer 25

Your implied, because you can factor in changes into your valuation rapidly.
PAr contre le marche souvent, prends plus de temps a factoriser les changements.

Question 26

You’ve explained that Equity Value represents the value of ALL assets. If that’s the case, why doesn’t a Debt issuance boost Equity Value? After all, if a company raises $100 in Debt, it gets $100 in extra Cash.

Answer 26

the definition is “the value of all assets to equity investors”

“And that last part explains this effect: When a company’s Assets increase, if that increase is funded by Debt (or any other non-equity investor), then Equity Value will not increase.”