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Unformatted text preview: Equity Valuation Enterprise Value The Enterprise Value of the firm is the sum of its market value of equity and its market value of net debt EV= E+D-Cush Cash can be thought of as negative debt. Hence, we remove it from the estimate of the value of the firm as an ongoing enterprise. Some valuation approaches focus on the enterprise as a whole, while others focus 0 0 equity. Measures of Value Book Value of Equity The net worth of common equity according to a fum's balance sheet Book Value of Equity =Assets - Liabilities Why does a stock have value? A share of equity represents a claim on the current and future free cash flows of the firm. A share of equity has value because of the expectation of an eventual payout of these free cash flows. Payout can take the following forms:- Dividmd. Can be lpCcial distributions OJ' regularoogoing pa)'Ulents.- Sharr Repurchlld Often at a slight premium over aam::ot rnasUt value....
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- Fall '10