Since enterprise value equals net debt plus equity, the enterprise value can be derived from the equity value and vice versa. We assume that cash is excess cash and part of the capital structure. Operating Assets – Operating Liabilities = Debt + Equity – Cashīalance sheet amounts are book value or carrying value but for valuation, all components must be at the market or fair value. If the equation is rearranged, the operating components can be isolated: Operating Assets + Cash = Operating Liabilities + Debt + Equity Since enterprise value is the fair value of the net operational assets, the equation can be expanded to identify these components as follows: In order to find the enterprise value we can expand and rearrange the accounting equation: operate in similar industries, similar depreciation policies The enterprise value of a company should always be compared with comparable companies to provide meaningful outcomes i.e.The EV to equity bridge is summarized as enterprise value = equity value + debt – cash and cash equivalents.It is driven by a combination of factors including company performance, industry dynamics and economic climates.
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