- 1) What is the difference between book value and market value of a public company?
Book value is the shareholders' equity as listed on a company's balance sheet; market value is the market capitalization (# of shares × $/share) of a business.
- 2) How is the market value of a business calculated?
Market value is calculated by multiplying the number of shares outstanding by the current share price.
- 3) How is the enterprise value of a business calculated?
Enterprise value is calculated by adding net debt to a company's market value. Net debt is the company's total debts (plus capital leases, certain convertible securities, and non-controlling interests if any) less cash.
- 4) Why is it important to remove cash from net debt to arrive at an enterprise value of a business?
Removing cash leaves us with a value that represents the core operating assets of a business.
- 5) What is the difference between a market multiple and a purchase multiple?
A market multiple is a multiple based on the current valuation of a company; a purchase multiple is based on the price paid for a company.
- 6) Why is Market Value/EBITDA not a good comparable multiple?
Market value is the value of a business after lenders have been paid; EBITDA (before interest) is a metric before lenders have been paid.
- 7) What are the three major methods of valuation?
- Comparable company analysis
- Precedent transactions analysis
- Discounted cash flow analysis
- 8) What is the purpose of the discounted ...