Enterprise Value

Solving the P/E conundrum by looking at a different valuation metric (enterprise value)

Uploaded by: khanacademy
Tags for this video: enterprise value EV ebitda operating income valuation

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Array ( 2 years ago by nisteroo)

Hi Khan,
Just wanna say that you are blessed with having special ability to teach.... to make something complicated seens easy! Amazing! Keep up the good work and I can't wait for your series on valuation for startups... you will be producing them, I hope:)

Wow! I will be back ... ( 2 years ago by tesskansas)

Wow! I will be back to learn more. Thanks for the visuals also.

Sorry, but I don't ... ( 2 years ago by aszabo1234)

Sorry, but I don't get it: When I buy a share of the company, I actually pay for the equity, not for the operating asset, as the seller also did not pay for the debts.
It is clear that if I want the whole earning stream, I would buy out all equity + all debt - sell the non-operating cash, but still when I buy a share, I buy part of equity only.
Please tell me if I'm wrong, and point me where. Thx.

What happens to the ... ( 1 year ago by katchum)

What happens to the enterprise value if I have a company with no debt, 99% cash and 1% equity? Total assets are 1 million dollars and let's assume the company has close to no profits. Market cap will be 1 million dollars, because the company is full of cash. If I use the formula for EV, we have EV=10000 dollars. Does this mean I can buy the company for 10000 dollars and get the 990000 dollars cash for free?

@aszabo1234 I'm not ... ( 8 months ago by brwin)

@aszabo1234 I'm not sure I follow you question correctly but there are different ways to buy a 'company' - you could 1) Purchase all the equity, i.e. shares (I think this is what you're referring to), 2) purchase the operating assets of the company (e.g. purchasing the machines/plant/equipment and nothing else) or you could 3) purchase the debt and equity of the company (what Sal refers to in his video). Which method is used depends on the goal of the purchaser. Hope that helps....