Valuation of shares
CAJ (Proprietor) (74 Points)
06 February 2015
How to calculate enterprise value for valuation of shares?
Enterprise value (EV), Total enterprise value (TEV), or Firm value (FV) is an economic measure reflecting the market value of a whole business. It is a sum of claims of all claimants: creditors (secured and unsecured) and equityholders (preferred and common). Enterprise value is one of the fundamental metrics used in business valuation, financial modeling, accounting, portfolio analysis, etc.
EV is more comprehensive than market capitalization (market cap), which only includes common equity.
Enterprise value =
common equity at market value (this line item is also known as "market cap")
+ debt at market value (here debt refers to interest-bearing liabilities, both long-term and short-term)
+ minority interest at market value, if any
+ preferred equity at market value
+ unfunded pension liabilities and other debt-deemed provisions
- cash and cash equivalents
- "extra assets", assets not required to run the business
- investments in associated companies at market value, if any
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