Enterprise Value EV | Formula, Examples | Calculation
In this video on Enterprise Value EV, we are going to discuss this topic in detail including its calculation with some examples to understand this in a better manner.
𝐖𝐡𝐚𝐭 𝐢𝐬 𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐕𝐚𝐥𝐮𝐞?
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Enterprise Value is equal to the market capitalization + debt + value of minority interest + value of preferred shares - total cash and cash equivalents
𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐕𝐚𝐥𝐮𝐞 𝐟𝐨𝐫𝐦𝐮𝐥𝐚
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Enterprise Value Formula = (Market Capitalization + Market value of preferred equity + Market value of debt + Minority interest) – Cash and cash equivalents
𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐕𝐚𝐥𝐮𝐞 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Suppose a company PQR is considering the acquisition of another company XYZ. Now, what amount to be paid should PQR have in mind for this purpose? Or, what is Enterprise Value / Firm value of XYZ if it has the following financial details?
Shares outstanding = 2,000,000
Stock price = $ 30 per share
Market value of debt = $ 20,000,000
Cash and cash equivalents = $ 9,000,000
Market value of preferred equity = $ 600,000
Minority interest = $ 3,000,000
Market Capitalization will be equal to (Shares outstanding * Stock price) = (2,000,000 * $ 30) = $ 60,000,000.
Now, the Enterprise Value calculation is done as per the following
Enterprise Value Formula = (Market Capitalization + Market value of preferred equity + Market value of debt + Minority interest) – Cash and cash equivalents
= ($ 60,000,000. + $ 600,000 + $ 20,000,000 + $ 3,000,000) – $ 9,000,000 = $ 74,600,000
Enterprise Value = $ 74,600,000
To know more about 𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐕𝐚𝐥𝐮𝐞, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞: https://www.wallstreetmojo.com/enterp...
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