Enterprise Value Explained

[LearnedfromTV]

Facetious.

[adios]

Enterprise value is usually discussed when determining a price a potential suitor might pay. Take the enterprise value and add a "takeover premium" for the value of an acquisition candidate to potential suitors. FWIW a non acquisition candidate's enterprise value doesn't mean very much IMO.

[midas]

Isn't that the "true value" not the "speculative value" of a Company?

[DesertCat]

[ QUOTE ]
FWIW a non acquisition candidate's enterprise value doesn't mean very much IMO.

[/ QUOTE ]

This is wrong. You have to use EV when evaluating any stock. Two companies both earn $10M a year, both have $100M market caps. But company A has excess cash of $100M, and company B has $100M in debt. The market is saying that company A's business is essentially worthless, while B's is worth $200M.

I think one problem is that it's not really "EV", it's EP (enterprise price). It's looking at what price the market really puts on the underlying business. It's not telling you the "value" of that business. It's up to you to perform the analysis to decide what the true value is and if the market is way wrong, to profit from that discrepancy.