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Equity Value vs Enterprise Value | Calculation & Examples - YouTube
Channel: WallStreetMojo
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hey there folks welcome to wallstreetMojo Investment Banking tutorial and
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the topic at hand is equity value versus
enterprise value so equity value can be
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the market cap of the company which is
basically the number of shares
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outstanding times the value of a
particular stock which is being traded
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on the exchange
alright so equity value is is a part of
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the enterprise value so and the price
value typically contains the equity
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value and net debt when I say when I say
net debts I mean debts Less the cash which is
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in the books or cash at hand and on bank
alright so this is the concept here and
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we will just look at the computation of
the formula so to understand what is
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equity value and visibly you know how is
it different from the enterprise value
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alright so if we look at the example
here you know it says that the company a
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has shares outstanding to the tune of a
million so the company hey a has a
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million shares outstanding and the share
price of the company a is $50 all right
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so with this information one can
ascertain the value of the market
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capitalization which comes out to be 50
million dollars all right now this 50
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million dollars is forming a part of the
enterprise value alright so this plus
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the value of debt which is there in the
books less the cash and cash equivalents
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will give us the enterprise value all
right so let's go down here and look at
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the enterprise value so it says that
enterprise value is market value of the
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operating assets and equity value is the
market
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value of the shareholders equity all
right so if you look at the total assets
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you know total assets is the enterprise
value and under the liabilities and
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shares shareholders equity side you have
got net debt and and the rest of it is
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equity value all right so this was the
concept and we'll look at the live
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example of a particular company so to
understand how we we can come up to
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these values alright or how we can
calculate these values so let's just
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quickly look at the computations of
enterprise value and equity value for
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Amazon all right so you go to Edgar type
in Amazon I think this is this one
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amazon calming we look at the 10-q data
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so here we go to the consolidated
statements of operations so let's look
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at the values here so 3 months ended
31st March 2018 the net sales is
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51 billion dollars okay and in the
balance sheet side we have got total
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assets as 126 billion dollars and total
liabilities as 48 billion 24 billion and
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22 billion so this would sum up to
somewhere close to you know a
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100 billion dollars all right
so now let's just open that excel sheet
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and try to figure out the values so
let's just first calculate the
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enterprise value so the enterprise value
is going to be equity value plus net
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debt so when I say in that debts it is
going to be the overall debt less cash
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and cash equivalents all right so this
is going to be the computation for
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enterprise value also if there is any
preference shares you know we would also
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take them into account so let's just
find out if there is any so there is
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nothing with respect to preferred stocks
so that's okay now let's figure the
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value of equity so equity value the
number of shares outstanding times the
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market value of per share all right
so number of shares outstanding this
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data would be available somewhere
here so weighted average shares used in
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the computation of earnings per share
under this heading you see the diluted
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shares outstanding and 498 million
shares so number of shares
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it's 498 million and and the market
price of a share of a single share is we
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will have to find out so Amazon quote so
this is the value of a single share and
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the and equity value or the market cap
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it's going to be this times this
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alright so changing the format what give
us the actual value so this is an
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absolute terms and we can just take that
number and divide it by millions to get
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the value for equity in I'm sorry so we
just have to you know divided by 90
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to get the value in billions so
this is again the same value but this is
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just in billions right and in
billion dollars so 798 billion dollars
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is the equity value or the market cap of
the of the company and so this would go
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in this equation here and we would also
need the value for net debt so net that
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it's going to be the overall debt less
the cash and cash equivalents so if you
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look at the balance sheet here the
long-term debt is going to be so
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long-term debt this much other long-term
liabilities is this much and current
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liabilities is this much now the value
for cash and cash equivalents is this
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much 16 billion all right so the net
debt figure is going to be the sum of
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all these values less this value here so
it is it is going to be 101 billion
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dollars all right so now the enterprise
value is going to be the equity value it
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this is in billions and the net debt all
right
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and there has to be an adjustment which
is to be made here so this is going to
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be in millions and this is going to be
again in millions and this whole thing
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here has to be divided by you know a
billion so to get the numbers in order
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so this is 102 and this is 798
so this gives us an enterprise value of
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900 billion dollars all right
so if you just add just the decimal
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places
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yeah so 900 billion dollars is
the current enterprise value of Amazon
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as we have calculated here and equity
value is this
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so equity value forms a part of the
enterprise value all right so it is a
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small block in the bigger picture all
right so I hope this gives you a good
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perspective of what is equity value and
what is enterprise value so to reiterate
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you know equity value forms a part of
the overall value of the firm all right
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which includes the debt as well as
the cash part all right
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so I hope you've enjoyed this video and
bye for now
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