EV Enterprise Value

[Winston001]

I've read of this from time to time but haven't seen anything about it on this site - or on Sharechat.

Does anyone use or rely on enterprise value? It seems to me a useful way of measuring the current value of a company. A decision can then be made as to over or under-valuation. Combined with PE, it at least gives a guide as to whether a stock is worthy of investigation.

[winner69]

Enterprise value is quite useful to check whether some perceived low (ish)pe companies are actually 'good' value

One is SKC which with a market cap of $2.1 billion is trading at 17.5 times forecast 05 earnings of $120M. Not low but only slightly above the market average

But with $1.1 billion of debt SKC's Enterprise Value is nearly $3.2 billion - some 26 times forecast 05 earnings ... that puts a different complexion on things

[Westie]

quote:Enterprise value is quite useful to check whether some perceived low (ish)pe companies are actually 'good' value

I agree, you really need to look at the whole capital structure of a co - debt, equity, & cash to establish whether it is undervalued. AFter scrutinizing a co's balance sheet and possible liquidation value, I then use Earnings Power Value, a recasting of Enterprise value, given by Bruce Greenwald in his book "Value Investing - From Graham to Buffett & beyond"

[OldRider]

Interesting,something further to look at.

I have always taken some notice of return on assets, not just ROE, and the difference between the two. EV will do something similar.

As well, I have thought it wise to consider carefully any co with debt > 40% of assets.

[Westie]

quote:As well, I have thought it wise to consider carefully any co with debt > 40% of assets.

I agree, I like to pick conservatively financed companies with low or no long term debt. There is a saying, "it's hard to go broke when you have no debt". These companies are also in a better position to take advantage of opportunities that arise in the market from time to time.

I guess i should do some further education on Enterprise Value myself. Can anyone suggest some good readings?