What Is Value?

Before getting into the leveraged buyout analysis, a valuation overview is in order. The most important question before even getting into the mechanics is “What is value?” To help answer this question, we note there are two major categories of value:

1. Book value. Book value is the value of an asset or entire business entity as determined by its books, or the financials.
2. Market value. Market value is the value of an asset or entire business entity as determined by the market.


The book value can be determined by the balance sheet. The total book value of a company’s property, for example, can be found under the net property, plant, and equipment (PP&E) in the assets section of the balance sheet. The book value of the shareholders’ interest in the company (not including the noncontrolling interest holders) can be found under shareholders’ equity.


The market value of a company can be defined by its market capitalization, or shares outstanding times share price.

Both the book value and market value represent the equity value of a business. The equity value of a business is the value of the business attributable to just equity holders—that is, the value of the business excluding debt lenders, noncontrolling interest holders, and other obligations.

Shareholders’ equity, for example, is the value of the company’s assets less the value of the company’s liabilities. So this shareholders’ equity value (making sure noncontrolling interest ...

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