About Lesson
a. This approach insists on estimating the value of the enterprise, rather than that of just the equity and then comparing the same with the benchmarks.
b. The formula for calculating the value of the enterprise is:
VE = (P0 × No. of Shares) + MVPref. Shares + MVDebt – Cash |
This value is also referred to as the cost of the takeover.
c. This approach is most useful while comparing the companies with significant differences in the capital structure.
d. An example of the enterprise value multiple is:
EV Multiple = VE / EBITDA |
It should be noted that companies whose debt is not traded publically, have difficulty in calculating the enterprise value.