Enterprise Value, which debt?

CFA Level II
#1

Whats up homies,

I have a question regarding EV.

What debt we using here? My notes state: MV Debt + MV Equity +MV Pref Eq + Minority Interest - Cash

If we are given a balance sheet can I just take the Total liabilities number for MV debt? An answer in one of the questions suggests taking just LT debt and ‘Current Portion of LT debt’

Any help please!

R

#2

Think about it - Total Liabilities includes things such as A/P, Unearned Revenue, etc. EV is a crude measure of the cost to acquire the ENTIRE company. Therefore to buy the entire company you would just want to know what are the values of the equity, debt, preferred, etc. and you wouldn’t really care how much in A/P the company has outstanding.

When given the b/s (and not the market values) use the book values for the debt (both ST and LT). It is just assumed that the book vlaues are equal to the market values in this case.

#3

OK cool, I wasn’t sure whether it was important to look at all Debt as I guess its more accurate.

But wait, might be a stupid question- but if we just want the LT and ST debt only in EV and there is a balance sheet item called ‘current portion of LT debt’ then is that not part of the ST debt? Or are we saying that we have long term debt (which excludes A/P etc) and there is a portion of that we need to pay off in the next year, so this is ST debt. Because I am also looking at it as if the ‘current’ portion must be things like current liabilities such as A/P etc.

Thanks

#4

Although I guess the Market Value is the key word I’m missing. It doesnt make sense to have ‘market value’ A/P’s etc so yeah you’re right/

#5

Take into account only all interest-bearing debt both short and long term and you will not make an error. Also check if is there preferred stocks and minority interest. If so, it also should be added to MValue of Debt and Eq.

#6

Cheers Flash

#7

Hi Guys, A bump to this tread.

In question 28 of reading 32 they only include Long Term D and ignores “Current L” for Mv Debt. (MV is assumed to be the same as BV).

Why is this? Should I always ignore Current L when calculating EV? If this is the case, what is the rule on what I should include in terms of Market Value of Debt. Thanks for the help!