Enterprise Value Calculator

Enterprise Value represents the total theoretical takeover price of a company. It measures what an acquirer would need to pay to own the entire business, including both equity and debt obligations. FORMULA: EV = Market Cap + Total Debt + Minority Interest + Preferred Equity − Cash & Equivalents KEY CONCEPT: EV represents value to ALL capital providers (equity holders, debt holders, minority shareholders), not just common shareholders. This makes it useful for comparing companies with different capital structures. EXAMPLE: • Company A: $10B market cap, $2B debt, $1B cash → EV = $11B • Company B: $8B market cap, $5B debt, $1B cash → EV = $12B Despite lower market cap, Company B has higher EV due to more debt.

Enterprise Value is crucial in corporate finance for several reasons: M&A ANALYSIS: • Represents actual acquisition cost (not just equity purchase) • Acquirer assumes target's debt obligations • Cash on balance sheet reduces effective purchase price VALUATION MULTIPLES: • EV/EBITDA: Most common valuation metric for operating companies • EV/Revenue: Used for high-growth or unprofitable companies • EV/EBIT: Alternative to EV/EBITDA for capex-heavy businesses CAPITAL STRUCTURE NEUTRALITY: • Compares companies regardless of debt levels • Eliminates distortions from financing decisions • Shows true operating value of the business Industry standard for investment banking, private equity, and corporate development teams.

Market Cap and EV measure different things: MARKET CAPITALIZATION: • Value of equity only (share price × shares outstanding) • What public shareholders collectively own • Ignores debt and cash positions • Can be misleading for highly leveraged companies ENTERPRISE VALUE: • Value of entire business operations • Includes debt holders' claims • Subtracts non-operating cash • Better for comparing companies across industries ANALOGY - Buying a House: • Market Cap = Down payment (equity portion) • Debt = Mortgage you assume • Cash = Money in the safe you receive • EV = Total cost to own the house (down payment + mortgage - cash) WHEN TO USE EACH: • Market Cap: P/E ratio, equity returns • EV: Operating multiples (EV/EBITDA), M&A analysis

Cash is subtracted because it represents non-operating assets that reduce acquisition cost: ACQUISITION PERSPECTIVE: • Acquirer receives target's cash upon purchase • Effectively reduces net cost of acquisition • Cash can immediately pay down acquisition debt OPERATING VALUE FOCUS: • EV measures value of operating business • Excess cash isn't required for operations • Non-operating investments similarly excluded EXAMPLE: Company with $100M market cap, $20M debt, $15M cash: • EV = $100M + $20M - $15M = $105M • Acquirer pays $100M for equity • Assumes $20M debt obligation • But receives $15M cash to offset • Net cost to control operations = $105M IMPORTANT DISTINCTIONS: • Operating cash (working capital) stays in EV • Only "excess" cash is subtracted • Analysts may adjust for restricted or trapped cash

Minority Interest (Non-Controlling Interest) represents ownership stakes in subsidiaries not held by the parent company: DEFINITION: • Third-party ownership in consolidated subsidiaries • Appears on balance sheet as liability/equity hybrid • Parent consolidates 100% of subsidiary financials WHY INCLUDED IN EV: • Consolidated financials include 100% of subsidiary operations • EBITDA reflects 100% of subsidiary earnings • Must include 100% of subsidiary value for consistency EXAMPLE: Parent owns 80% of subsidiary worth $100M: • Parent's stake: $80M (in market cap) • Minority interest: $20M (must add to EV) • This way, EV reflects 100% of consolidated operations ACCOUNTING TREATMENT: • Under IFRS and US GAAP, minority interest reported in equity section • Market value of minority interest often estimated • Use book value if market value unavailable

Preferred Equity should be added to EV when it exists on the balance sheet: CHARACTERISTICS OF PREFERRED STOCK: • Hybrid security (features of both debt and equity) • Fixed dividend payments (like interest) • Priority over common stock in liquidation • Usually non-voting WHY ADDED TO EV: • Represents a financing claim on the company • Preferred holders have priority over common shareholders • Adding aligns EV with operating metrics like EBITDA HOW TO VALUE: • Public preferreds: Market price × shares outstanding • Private preferreds: Face value or estimated fair value • Consider callable features and conversion rights COMMON INDUSTRIES: • Financial services (banks, REITs) • Utilities • Companies with complex capital structures • Venture-backed startups (Series A, B, C preferred) If no preferred equity exists, this component is zero.

Key data sources for Enterprise Value components: MARKET CAPITALIZATION: • Yahoo Finance, Google Finance (quick reference) • Bloomberg, Refinitiv (professional terminals) • Company investor relations website • Calculate: Share price × diluted shares outstanding TOTAL DEBT: • Balance sheet (10-K, 10-Q filings on SEC EDGAR) • Long-term debt + Short-term debt + Current portion of LT debt • Include capital leases (post-ASC 842) • May include off-balance sheet obligations CASH & EQUIVALENTS: • Balance sheet line item • Include marketable securities • Exclude restricted cash if not available for operations MINORITY INTEREST: • Balance sheet (equity section) • Notes to financial statements • Use book value if market value unavailable PREFERRED EQUITY: • Balance sheet (equity section) • Company filings for terms and conditions

When calculating market cap for EV, use DILUTED shares outstanding: BASIC SHARES: • Currently issued and outstanding shares • Simple count of existing shares • Understates potential share count DILUTED SHARES: • Basic shares + all potentially dilutive securities • Stock options (treasury stock method) • Convertible bonds/preferred • Warrants and restricted stock units WHY USE DILUTED: • Reflects potential future dilution • More conservative (higher share count = higher market cap) • Standard practice in investment banking WHERE TO FIND: • 10-K/10-Q filings (EPS calculation section) • Company press releases • Weighted average diluted shares for period EXAMPLE: • Basic shares: 100 million • Stock options: 10 million (in-the-money) • Diluted shares: 110 million • Share price: $50 • Diluted market cap: $5.5 billion

Enterprise Value forms the basis for key valuation metrics: EV/EBITDA (Most Common): • Operating multiple independent of capital structure • Typical ranges: 6-12x for mature companies • Higher for growth, lower for cyclical industries • Formula: EV ÷ EBITDA EV/REVENUE: • Used when EBITDA is negative or distorted • Common for tech, SaaS, high-growth companies • Typical ranges: 1-10x depending on growth • Formula: EV ÷ Revenue EV/EBIT: • Accounts for depreciation expense • Better for capital-intensive businesses • More conservative than EV/EBITDA • Formula: EV ÷ EBIT COMPARABLE ANALYSIS: 1. Calculate EV for each comparable company 2. Divide by relevant metric (EBITDA, Revenue) 3. Apply median/mean multiple to target company 4. Derive implied EV, then back-solve for equity value

EV calculations may require adjustments for complex situations: OPERATING LEASES (Pre-ASC 842): • Add capitalized operating lease obligations • Historically off-balance sheet • Now mostly on balance sheet under new standards PENSION LIABILITIES: • Add unfunded pension obligations • Represents future cash commitment • Found in pension footnotes ENVIRONMENTAL/LEGAL LIABILITIES: • Add known contingent liabilities • When probable and estimable • Disclosed in financial statement notes UNCONSOLIDATED INVESTMENTS: • Equity method investments excluded from EBITDA • May need to adjust EV or add proportionate value NET OPERATING LOSSES (NOLs): • Tax assets may add value beyond operations • Consider present value of future tax savings • Often analyzed separately EXCESS REAL ESTATE: • Non-operating assets may be excluded • Add back if material to valuation

Yes, EV can technically be negative, but it's rare and signals unusual situations: WHEN EV IS NEGATIVE: • Cash exceeds market cap + debt • Company is worth less than its cash holdings • Market doesn't believe cash is accessible/real CAUSES OF NEGATIVE EV: • Anticipated large losses or liabilities • Cash trapped in foreign subsidiaries • Pending litigation or regulatory fines • Business wind-down scenarios • Market inefficiency or mispricing INTERPRETATION: • May indicate deep value opportunity • Or serious fundamental problems • Requires careful due diligence EXAMPLE: • Market Cap: $500M • Total Debt: $100M • Cash: $800M • EV = $500M + $100M - $800M = -$200M This suggests market values operating business at negative $200M, implying expected losses exceed cash balance.

EV calculation principles apply universally, but interpretation varies by industry: TECHNOLOGY/SAAS: • Often high EV relative to revenue • Limited debt, significant cash • Focus on EV/Revenue multiples • Growth premium in valuations FINANCIAL SERVICES: • EV concept less applicable • Banks: Book value and P/E more relevant • Insurance: Use embedded value metrics • Debt is operational, not financing REAL ESTATE/REITs: • Use Net Asset Value (NAV) instead • Property values drive valuation • Debt levels highly variable ENERGY/MINING: • EV critical for reserve comparisons • Adjust for decommissioning obligations • Commodity prices affect EV multiples RETAIL/CONSUMER: • Include operating lease adjustments • Working capital considerations • EV/EBITDA most common metric HEALTHCARE/PHARMA: • Pipeline value often separate • R&D adjustments to EBITDA • Patent expirations affect multiples