Enterprise and Equity Value Flashcards
Enterprise Value
The value of a company’s core business operations to ALL the investors in the company
How do you calculate Company Value?
Cash Flow / (Discount Rate - Cash Flow Growth Rate)
What are the two ways you can measure a company’s value?
Market and Intrinsic Value
What is the Market Value of a company?
It’s the company’s worth right now according to the stock market, its current owners, or its current investors.
What is the Implied or Intrinsic Value of a company?
It’s what the company should be worth according to your analysis.
What’s the MAIN reason why a company’s MV may be different from its IV?
You and the market disagree about the company’s future cash flow growth rate
What is Equity Value?
The value of EVERYTHING a company has, but only to EQUITY Investors
What is Enterprise Value?
The value of the company’s CORE Business Operations, but to ALL Investors
What is Market Capitalization?
A company’s shares outstanding times it current share price
What is the current Equity Value for a publicly traded company?
Its Market Capitalization
What are non core business operations?
Cash & Investments
What is value to Debt and Preferred Investors?
Debt and Preferred Stock
Why do a company’s Cash & Investments count as non-core business assets?
Because they are not needed to sell products to customers
When can you calculate EqV and EV?
At a specific point in time
What is Implication #3?
In theory, financing events will not affect enterprise value, but they may affect equity value.
