Enterprise Value

CFA Level II Equities
#1

Can someone clarify EV

  • EV = market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments.
  • Another forumula has me removing short term investments but that doesnt make sense to me. Can someone clarify?
#2

You should remove all non-operating assets in the formal textbook definition of EV.

You might not in some other cases, but not for exam purposes.

#3

Short term investments are generally liquid and can be treated as cash in most cases, which is why they are deducted from EV.

#4

thanks guys

#5

Easy way to remember all of this is to treat the Enterprise Value as what you would have to pay to obtain the company today.

So you take the Market Cap of the company, but then you have to pay off their debt, but obviously any cash or short term investments basically lower your acqusition price

#6

I’ll genuinely be shocked if we’re asked to calculate this in the exam. If EV does make an appearance it’s more likely we’ll be given the figure for using and interpreting an EV/EBITDA multiple or something.