馃攳
Enterprise Value EV | Formula, Examples | Calculation - YouTube
Channel: WallStreetMojo
[11]
hello friends welcome to the investment
banking module of Wallstreetmojo
[17]
today's topic is enterprise value and
Friends enterprise value is one of the
[23]
most important valuation tool which
helps the companies in making investment
[29]
decisions enterprise value is a broader
term than the commonly used term called
[35]
as market capitalization I am sure you
all must have heard about the term
[40]
market capitalization which is what is
the current market value of the company
[45]
stock enterprise value is a broader term
than market capitalization enterprise
[52]
value basically identifies what is the
total value of the firm that means what
[59]
is the total value or what is the total
price an acquirer
[64]
may be willing to pay for the seed
company let us try to go through the
[70]
definition of enterprise value of firm
value enterprise value of firm value
[75]
consider much more than just value of a
company's outstanding equity which we
[81]
have just now discussed which is called
as market capitalization it tells you
[86]
much more a business world enterprise
value is a theoretical price an acquirer
[92]
might pay for another firm and is useful
in comparing forms with different
[99]
capital structure since the value of
firm is unaffected by its choice of
[105]
capital structure the reason why often
have investment bankers and acquiring
[112]
companies use enterprise value as an
investment tool because enterprise value
[118]
does not really differentiate between
the capital structure of the company for
[124]
example if a company A has a 50 is 250
capital structure that means out of its
[132]
total capital 50% is equity and 50% is
debt the value market capitalization
[140]
which is the value of the equity will be
different for the company A
[145]
having a 1:1 capital ratio then a
company B which has 100% equity even
[154]
though all the other parameters are safe
the reason being with Company A will be
[161]
considered as a financial needs leverage
company and as a result of which the
[167]
market price of company A will be
different than Company B we will discuss
[172]
about it and him's enterprise value is
considered which does not really
[177]
differentiate between the capital
structure of the company that means
[182]
enterprise value treat all the companies
are same whether it has 100%
[188]
equity or it has certain elements of
debt financing and to get let us try to
[193]
understand how to compute enterprise
value or what is the formula for
[199]
computation of enterprise value of a
company enterprise value of a company is
[205]
market capitalization plus market value
of preferred equity plus market value of
[212]
debt plus minority interest minus cash
and cash equivalents so they are
[221]
primarily 5 components which are
involved in computation of enterprise
[226]
value let us try to discuss each of
these components let us first try to
[231]
understand what does the term market
capitalization means market
[236]
capitalization is nothing but the total
value of the company's outstanding
[241]
equity shares or outstanding common
stock of the company if the current
[248]
market price of the company stock is
$500 and the company has have 1,000
[257]
common stock outstanding in that case
market plan capitalization will be $500
[264]
multiplied by 1000 common stock this
will give me the market capitalization
[269]
so market capitalization is nothing but
the current market value of the
[274]
company's outstanding common stock
what is market value of preferred equity
[280]
it is very similar to market
capitalization market capitalization
[285]
computes the value of the common stock
of the form whereas market value of
[290]
preferred equity computes the current
market value of any preferred stock
[296]
which is outstanding for the company if
the company has issued any preferred
[301]
stock we need to include the market
value or the current market value of the
[306]
company's preferred stock as well what
is market value of debt as the name
[312]
suggests we also need to compute what is the current market value of the
[317]
company's debt usually the book value of
the debt is only considered as market
[323]
value of that debt minority interest is
if a company wants to acquire the
[332]
company for which we have come computing the enterprise value if there is any
[336]
minority interest in that company we
need to include the minority interest as
[341]
well for example if company A wants to
acquire Company B and Company B has
[350]
certain minority interest in his balance
sheet and in that case we need to
[356]
include that component of minority
interest when we are computing the
[360]
enterprise value of this company now
having considered all these components
[367]
we need to reduce the cash and cash
equivalent which is there in the latest
[374]
available balance sheet of the company
or the last available balance sheet on
[379]
the date when we are computing the
enterprise value the question which
[384]
comes is why do we really need to reduce
cash and cash equivalent the reason is
[390]
sole purpose of computing enterprise
value of any company is to identify how
[397]
much price and acquirer needs to pay if
he wants to acquire that company and
[404]
since cash and cash equivalent is a cash
balance which is available with the
[409]
company if the company acquire
the target company the cash and cash
[414]
equivalents will also become the
acquirers cash and cash equivalent
[420]
that's first reason second reason is if
the company has certain cash and cash
[426]
equivalent the company has used the seed cash in cash equivalent to repay the
[432]
current debt or outstanding debt of the
company and therefore it can the
[437]
enterprise value can come down therefore we need to reduce any cash and cash
[443]
equivalent which is available let us
quickly try to compute the enterprise
[449]
value of a company I have a question
over here current market price of the
[454]
company is $1600 per share the number of
common stocks which are outstanding is
[462]
500,000 so 500,000 common stocks are
outstanding for the company the current
[468]
value of company debt is $7 million
and the cash and cash equivalent
[474]
which is available in the books of the
company is $400,000 what we need to do
[480]
we need to compute the enterprise value
of the company for which the given
[488]
instance information are given and in
order to compute the enterprise value
[492]
first we need to compute the market
capitalization how much the value the
[499]
company's current common stock has so as I mentioned the market capitalization is
[505]
nothing but current market price of the
company multiplied by the total number
[510]
of common stocks which is outstanding so I am multiplying $1600 multiplied by
[517]
500,000 common stock will give me the
current market capitalization of the
[523]
company common stock in this I am going to add value of company's debt the
[531]
current value of the company's debt is
already given in the problem which is $7
[536]
million from the market capitalization of the common stock and
[541]
the value of debt I will need to reduce
the cash and
[545]
cash equivalent which is also given in the
problem the cash and cash equivalents
[551]
which is given I need to reduce that
that means I need to reduce $400,000
[555]
in order to compute the
enterprise value of the company's
[561]
enterprise value is also termed as firm
value so the market capitalization +
[567]
value of debt
- cash and cash equivalent will give me
[572]
what is the current enterprise value of
this particular company that means if an
[579]
acquirer wants to acquire this company
he needs to pay at least this enterprise
[585]
value amount to the target company
obviously when an acquisition happens it
[591]
may so happen that the acquisition is
happening at a value which is more than
[595]
the current enterprise value because of
certain additional synergies which are
[601]
target at which an acquirer might get if
he acquires the seed target company let
[607]
us quickly go through this chart wherein
the enterprise value of apple is given
[613]
and as you can see the enterprise value
of apple has seen a growing trend over
[619]
the last 10 years however over the last
2 to 3 years the company has seen
[625]
a significant decrease in the current
enterprise value of the stock or current
[631]
enterprise value of the company
currently the company's enterprise value
[635]
is around $615 billion if so this is the whole
[641]
concept of enterprise value
Most Recent Videos:
You can go back to the homepage right here: Homepage