Enterprise Value Enterprise Value l What is Enterprise

Enterprise Value

Enterprise Value l What is Enterprise Value? – Market Value of Equity plus debt minus cash and investments l Why is it used? – To more accurately reflect the value of a company at any one time rather than market capitalization (share price times shares outstanding)

Enterprise Value l What’s the point? – EV measures what it would actually cost to purchase an entire company. It is the real, economic value of the company.

Enterprise Value l Example: Company A: Equity Value $20 million Debt Value $50 million Cash & Investments $2 million Price paid for stock: $20 million. Real price paid for the entire company: $68 million You’re assuming a debt of $50 million, so that is an economic cost. l The cash belongs to the new owners after the old equity holders are paid off. l

Enterprise Value Multiples l EV/ – EBITDA, EBIT, Net Revenue, Net Income… l How do they work? – The ratios measure profitability and revenue generating capability regardless of company size.

Enterprise Value Multiples l So…. – Companies can be compared to each other based on these multiples. – The lower the multiple, the more earnings you get for your money invested.

Enterprise Value Multiples l Viacom (as of Dec. 31, 1999): – Market Cap: $42. 6 B (. 709 B shares times $60 per share) – Debt: $6. 00 B – Cash & Investments: $0. 688 B – Enterprise Value: $48 Billion EBITDA: l EBIT: l REVENUE: l $2. 162 B $1. 318 B $12. 86 B

Enterprise Value Multiples • The implication is that Viacom is undervalued on a comparable company basis