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Enterprise value ( EV ), total enterprise value ( TEV ), or firm value ( FV) is an economic measure reflecting the market value of a business (i.e. as distinct from market price ). It is a sum of claims by all claimants: creditors (secured and unsecured) and shareholders (preferred and common). Enterprise value is one of the fundamental metrics ...
Working capital is key to knowing liquidation value. (In part, because of its own generous working capital, Berkshire can spend tens of billions on repurchasing shares of its own stock .) How to ...
The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. [ 1] The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value ...
This is in contrast to the more typical approach of discounting free cash flow to the Firm where EBITDA less capital expenditures and working capital is discounted at the weighted average cost of capital, which incorporates the cost of debt. For a multiple based valuation, similarly, price to earnings is preferred to EV/EBITDA. Here, there are ...
Valuation using multiples. In economics, valuation using multiples, or "relative valuation", is a process that consists of: identifying comparable assets (the peer group) and obtaining market values for these assets. converting these market values into standardized values relative to a key statistic, since the absolute prices cannot be compared.
Accretion/dilution analysis. BuyCo plans to acquire 100% shares of SellCo in a stock-for-stock transaction. [2] Accretion/dilution analysis is a type of M&A financial modelling performed in the pre-deal phase to evaluate the effect of the transaction on shareholder value and to check whether EPS for buying shareholders will increase or decrease ...
Free cash flow. In financial accounting, free cash flow ( FCF) or free cash flow to firm ( FCFF) is the amount by which a business's operating cash flow exceeds its working capital needs and expenditures on fixed assets (known as capital expenditures ). [ 1] It is that portion of cash flow that can be extracted from a company and distributed to ...
Discounted cash flow valuation was used in industry as early as the 1700s or 1800s; it was explicated by John Burr Williams in his The Theory of Investment Value in 1938; it was widely discussed in financial economics in the 1960s; and became widely used in U.S. courts in the 1980s and 1990s.