2. Enterprise Value

3. What is Enterprise Value? –Market Value of Equity plus debt minus cash and investments 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)

4. Enterprise Value 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.

5. Enterprise Value Example: Company A: Equity ValueDebt ValueCash & Investments $20 million$50 million$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. The cash belongs to the new owners after the old equity holders are paid off.

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

7. Enterprise Value Multiples 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.

8. Enterprise Value Multiples Viacom (as of Dec.31, 1999): –Market Cap: $42.6B (.709B shares times $60 per share) –Debt: $6.00B –Cash & Investments: $0.688B –Enterprise Value: $48 Billion EBITDA:$2.162B EBIT:$1.318B REVENUE:$12.86B

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