Lesson 7 of 7 · 15 min
Enterprise value multiples, asset-based valuation and choosing a model
Enterprise value prices the whole business net of its cash, so EV multiples compare companies with different capital structures; asset-based models value a company as what it owns minus what it owes; and combining models guards against the weaknesses of each.
In short
- Enterprise value = market cap + preferred stock + market value of debt − cash and short-term investments. It approximates the cost of a takeover.
- EV/EBITDA is the most common EV multiple; EBITDA is usually positive even when net income is not. Operating income can replace EBITDA.
- Equity value from an EV multiple: EV − debt − preferred + cash.
- Asset-based value = market value of assets − liabilities − preferred. It works for companies with few intangibles and many current assets; it gives a floor when intangibles matter.
- Each model family has strengths and weaknesses, so analysts often use several and investigate where they disagree.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.