Value of Equity using EV/EBITDA Multiple

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2004028's picture

Hi all,

If anyone did sample test 2011 then you should have saw this question already.
V1 Q22.

Asking to calculate Value of Equity using EV/EBITDA Multiple.

After getting EV, the answer added Cash & ST Investment and minus LT Debt only to get Value Equity.

My question is I though that to get Value of Equity from EV, we can simply subtract Value of Debt. Why do we need to added Cash & ST Inve? And why do we only minus the LT Debt?

Thanks for helping in advance.

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PuneCFA's picture

Hey actually Enterprise value (EV) is total market value of equity and debt after talking out Cash and Short term investment from it. Also it only include long term debt market value and not current debt.

So to calculate value of equity from EV, we need to add back cash deduction which we already did and then reduce maket value of LT debt from it.

Hope I answered your query. Revert me if you still have some doubt.

Thanks

2004028's picture

Thanks PuneCFA,

I always thought that EV value already eliminated Cash and add LT debt in. So to do it one more time for getting value of equity is confusing……

But, I guess you are right.

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