Enterprise value
The value of the whole firm to all its capital providers: equity market value plus debt and preferred stock, less cash and investments. Set against pre-interest measures such as EBITDA, it compares firms financed differently.
Where you will meet it
Enterprise value appears in 10 learning outcomes on the CFA syllabus. A few of them:
- Work out multiples based on enterprise value and explain what they mean
“Enterprise value is the market value of equity plus debt less cash, and represents the cost of acquiring the whole business.”
- Contrast relative with absolute valuation models and give examples of each kind
“Relative valuation instead prices a share against similar assets, typically with multiples such as price to earnings or enterprise value to EBITDA, relying on the idea that similar assets should sell at similar prices.”
- Explain what to consider about post-employment benefits when modelling and valuing a company
“Analysts treat a pension deficit as debt-like and a surplus as an asset, usually after tax, when measuring leverage and enterprise value.”
- Explain how a proposed corporate restructuring is first assessed
“Ask why the company says it is doing it and whether that is credible, and whether the action is material relative to the issuer, measured for example by the consideration against the issuer's enterprise value, or by effects on revenue, EBIT or capital structure.”
See also
Practise it
Practise enterprise value until it is automatic: questions that explain every wrong option.
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