Adjusted Net Asset Value Method – You’ll learn how to calculate enterprise value starting with equity value for three different companies: Target, Vivendi, and Zendesk. You will learn how to treat items such as annuities, operating leases, net operating losses, and convertible bonds.
This tutorial explains how to calculate enterprise value – but let’s start with the basics and how to calculate enterprise value.
Adjusted Net Asset Value Method
Enterprise value is the value of the company’s core business operations (i.e., net operating assets), but also the value of all of the company’s investors (which may include equity, debt, concessions, etc.).
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In contrast, equity value (also called market capitalization or “market equity”) is the value of everything a company owns (ie, net assets), but only to EQUITY investors (common shareholders).
For example, with enterprise value and free cash flow combined with DCF, you first calculate a company’s target enterprise value, then go back to its target stock value and derive the stock price from that.
In comparative company analysis, you use metrics and ratios based on enterprise value, such as the TEV/EBITDA ratio.
Enterprise value is important because it is not affected by a company’s capital structure—only by its core business operations.
Liquidation Basis Accounting And Reporting
To calculate enterprise value, you subtract nonoperating assets—in this case just cash—and add liabilities and equity categories that represent other groups of investors—in this case debt and preferred stock.
They mistakenly say you add debt because it “makes the company more expensive,” or you take cash because it “makes it cheaper to buy the company.”
For example, if a company buys a new plant using its cash balance, this will affect its PP&E (plant, property and equipment) and cash flow.
PP&E is considered an operating asset, so it affects enterprise value, but cash is a non-operating asset, so it does not affect enterprise value.
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The change is because non-operating assets do not affect the calculation of equity value. Only the net worth of the company matters.
When you analyze public companies, you can usually calculate each company’s equity and then create a “bridge” to the enterprise value.
Ideally, you would use the market value of these items, but if that is not available, the book provides a good estimate of everything except equity value.
If you can’t find something you want to add or remove from this list, you should tread very carefully, because there are
Lbo Pro Forma Balance Sheet Adjustments
The company’s balance sheet is your starting point for this exercise, but you should also look for things like the fair market value of liabilities, details about pension plans, and net operating losses included in deferred tax assets.
Enterprise value is calculated, but there is rarely a good reason to go outside the standard set.
There should never be goodwill and other items, and there should be no DTA (other than NOLs) or DTL. Industry-specific assets (such as the “content assets” of media companies such as Vivendi and Netflix) are business assets, so they should not be listed here either.
People add categories like Legal and Restructuring Liability, and you can drill down into categories like “Regulations” to see what’s in it.
Valuation Methods: A Guide
We cover some undergraduate courses and more advanced, specific cases on this site.
Welcome to our next lesson on equity value, enterprise value, and value multiples in this section. In this tutorial, we’ll dive into the stock value of Enterprise Value Bridge and look at Target, Vivendi, and Zendesk. We don’t spend as much time on Zendesk because it’s similar to Target. Both these are US based companies. It’s a little different for Vivendi because it uses IFRS, so the accounting rules are a little different than under US GAAP. But we start from there with goals and branches. I’m not going to go through this one slide presentation because that’s what you need to see in Excel and as you go through the company profile, you’ll need to highlight different things and figure out what they are. Any, to stretch.
Now, you should already be familiar with the concept of bridging, as you saw it in the first few lessons of this module, where equity represents the value of the net stock payable to common shareholders. So we always start by calculating the market price of the stock. Depressed stock prices are significant time. Enterprise value then represents net operating assets for all investors. So we take the non-operating or non-core assets and then add the liability and equity lines that represent the different groups of investors in the company. We have seen some common examples of additions and subtractions in this calculation. Now we are seeing it implemented in real life for these companies. As always, I have some detailed notes explaining what we’re adding, removing, or omitting in each company example.
So at a high level, typically when doing this exercise, you want to start with the active balance sheet of the company. So for the goal we can extract their essence. For all of these I use extracts rather than the full material, because it’s very difficult to jump to different areas when it’s a hundred pages long. So I look for the balance sheet. It’s not actually listed as a topic anywhere, but after a little digging we can see it here: Consolidated Statements of Financial Position. So we have cash, which we always want to keep in this calculation. In short, it’s unlike anything else out there. Asset and equipment backup is of course a key business asset. Operating lease assets are key business assets. Other properties may contain something. There may be something in other existing assets. But at first glance it seems that everything here is about cash.
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So let’s dive in now. I’m going to enter negative 2.577, which is really negative 2,577, which in this context really means 2,577,000,000,000. So that’s what we have there. Then look at some of these other things. Financial capital, equity capital, other fixed assets and net operating losses are mostly non-existent in the company. If we want, we can try to dig into other current properties or other non-current properties, if there is such a thing. Normally, fixed assets are listed as assets on the balance sheet, so they probably don’t get much here. If we go to other properties, they are all working. Income tax and dealership fees, prepaid expenses. So nothing really worthy here. Then we look for other non-properties. It’s not even in essence, but I’m telling you right now, nothing deserves it.
If you want to scroll down to see the company’s tax information, see where there is a net operating loss. If you go to where it says deferred tax assets or liabilities, there are different types of deferred tax assets, but there’s nothing about any net operating losses of the company in prior periods [inaudible 00:03:52] that can. Now will be used in the future. So we don’t say anything to all of them. So I say zero, zero, zero and zero. That’s it.
Now moving on to debt and equity. Again, usually the starting point here is the company’s balance sheet or statement of financial position. So if we look at the bottom line, we can see that they have payables and accrued liabilities, both of which are operating. Then the current portion of long-term debt is non-performing. Long-term debt, which is also non-operating. Then there are current operating leases that are operational but not operational. No deferred income tax or other liabilities. Deferred income tax We generally do not calculate this. Other non-debts, it depends on what they have. So we have to dig a little more there.
Now you need to be really careful before adding this table, because if you’ve gone through the fourth section of this tutorial, you might have encountered some problems doing this. Often companies have discounts or insurance premiums on debt or undiscounted issuance fees or other items that affect the balance sheet, even though they don’t affect what the company actually pays. Another problem is that the fair market value of debt can vary and is often different from what is shown on the balance sheet. So the best thing we can do is dig down and try to find the fair market value of the debt.
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Let’s look for fair value. Well, we have it. So this note makes sense
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