참여번역 : 어학사전

Enterprise value발음듣기

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In the price to earnings conundrum video we encountered a situation where two different entrepreneurs bought an identical asset, in this case it was a pizza parlor or a pizzeria, but they each financed it in a different way.발음듣기

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This guy was a little bit more conservative.발음듣기

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He paid for it outright. The entire asset was his equity.발음듣기

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He had no debt. While this guy, he borrowed some money and he even had some non-operating assets.발음듣기

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So he levered up. For every $1 he put in he borrowed $10 from the bank in order to buy more assets that he actually brought to the table.발음듣기

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And we saw when you did their financial statements - their revenue, cost of goods - everything up to the operating profit line was the same.발음듣기

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And that makes sense because, if you remember the first introduction to income statement video, operating profit is really indicative of what the operating assets are generating.발음듣기

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So in this case it's what this purple area right here is generating.발음듣기

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You could also consider that the enterprise.발음듣기

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What the enterprise is generating.발음듣기

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And everything below the operating line, everything below the operating profit line, is either coming from non-operating assets, that would the case of non-operating income.발음듣기

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And the entrepreneur on the right had some of that.발음듣기

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He had some of this non-operating income, $2,000 per year in that case.발음듣기

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While this guy didn't have any.발음듣기

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And then you have expenses associated with interest.발음듣기

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Right? In this case this entrepreneur had 5% of $100,000, so $5,000 a year.발음듣기

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And then when you have these differences in capital structure it changes what your net income is.발음듣기

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And they have slightly different net income numbers.발음듣기

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But what we saw is when we applied the same price to earnings ratio, and they had the same share counts - I didn't change too many variables here I just really changed how they paid for the asset.발음듣기

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But when you apply the same price to earnings ratio to both earning streams, to both companies, you got something that was reasonably unintuitive.발음듣기

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And there's no trick here really.발음듣기

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Because it's not crazy to assign the same price to earnings ratio.발음듣기

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And if you try it out, if you grow this guy's revenue a little bit, if you actually grow both of their revenues by the same amount or both of their gross profits by the same amount or if you grow both of their operating profits by the same amount,발음듣기

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you're actually going to see that this guy's earnings per share is growing faster.발음듣기

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So given that someone might say, oh, because of the leverage maybe I'm willing to pay even a higher multiple.발음듣기

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So it's not crazy to pay the same multiple for both of these guys.발음듣기

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But we saw at the end of the last video, when you apply, let's say, a 10 multiple, or really any multiple to both of these earning streams, you get a situation that at first doesn't look crazy.발음듣기

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OK, the market cap of this guy is $210,000 if you apply a 10 multiple to their earnings stream, while the market cap of this guy is $189,000 if you apply a 10 multiple to their earning stream.발음듣기

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Right? 10 times 18.9 thousand is 189,000.발음듣기

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10 times 21 thousand is 210,000.발음듣기

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But what was the conundrum, what really got us thinking, was how can this whole equity stream right here, or this equity, or this earnings stream be, worth 210 and this one be worth 189 when this guy only put $10,000 in initially and this guy put $100,000?발음듣기

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He put in 10 times as much.발음듣기

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And so when you're paying $210,000 for this asset, for this equity, you are essentially saying that this asset is worth $210,000.발음듣기

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But if you're saying that this equity is worth $189,000, right, that's what the market cap is.발음듣기

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It's the value of the equity.발음듣기

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Then you're implicitly saying that this asset, that all of these assets are worth the value of this market capitalization plus this debt, right?발음듣기

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So that's $289,000. And then if you wanted the value of this operating asset you would subtract out this much right here, the cash.발음듣기

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So you got something like $279,000.발음듣기

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So when you apply the same price to earnings to these similar businesses you've actually got a situation where you're overpaying for this asset relative to this one, even though they're identical.발음듣기

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So that left us with a question: what do we do?발음듣기

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What can we use other than a price to earnings ratio?발음듣기

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And that's what this video is for.발음듣기

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So the short answer is, one, you do have to use something different.발음듣기

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Price to earnings ratio is a good a quick way of comparing two companies relative to their growth or relative to an industry.발음듣기

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But it does lose a lot of information relative to how the companies are capitalized.발음듣기

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You saw in the last video that how you're capitalized, and when I say capitalized I mean how do you pay for your assets.발음듣기

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If you have a lot of debt versus a lot of equity, what actually happens on the earnings line is very, very different.발음듣기

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And so you lose all of that information.발음듣기

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And so if you want to capture that information, when you look at the price of a stock you have to figure out what you're actually paying for the enterprise of the company, the enterprise value of the company.발음듣기

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So when I talk about the enterprise, or the enterprise value, I'm talking about the operating assets.발음듣기

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It gets a little bit more complicated if you're talking about a financial company like a bank or an insurance company.발음듣기

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But if we're talking about a widget factory, the enterprise is essentially the assets.발음듣기

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The enterprise value is the asset value of the assets that allow the company to do business.발음듣기

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So whatever factories - well, in this case it's a pizzeria,발음듣기

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so the ovens, the building, the places, where people actually eat their food, and even the cash that's necessary to operate the business.발음듣기

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The enterprise value shouldn't incorporate the cash that's surplus, that's not necessary to operate the business.발음듣기

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So that begs the question, how do you calculate the enterprise value?발음듣기

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So you could go backwards and you say, OK, for a given price how much am I paying for an enterprise value?발음듣기

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So let's say that this stock - let's say that Company A or this one, let's say the stock right now is trading at $20.발음듣기

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So this is the current price that you could buy it at.발음듣기

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So it's the asking price in the market is at $20.발음듣기

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While this one is at, let's say it's at $10.발음듣기

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It's at $10. So at first glance you might just do a quick price to earnings ratio.발음듣기

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And you'll say, OK, for $20 I'm getting $2.10 earnings per year, assuming it's not growing or something.발음듣기

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So my price to earnings is approximately, I don't know have my calculator in front of me,발음듣기

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but $20 divided by $2.10 is going to be 9 point something, something.발음듣기

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Right? While this guy, for $10, I am getting $1.89 of earnings per year.발음듣기

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So what's 100 divided by 18?발음듣기

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It's 5 or 6 times. It's going to be 5 point something.발음듣기

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6 times 18 is 60 plus - Yeah it's going to be 5 point something, something.발음듣기

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So when you superficially just look at this you're going to say, wow, this is a cheaper price to earnings ratio, maybe I should buy that.발음듣기

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But what we saw in the last video is that price to earnings isn't a good relative valuation metric when two different companies are capitalized very differently.발음듣기

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So what you want to do is instead back out what these prices imply about the enterprise value.발음듣기

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So what does $20 imply about the enterprise value and what does $10 imply.발음듣기

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And how do you do that?발음듣기

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Well first you say what is the market cap?발음듣기

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Market cap. So you take the price times the number of shares.발음듣기

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If you remember, we had 10,000 shares.발음듣기

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So in this case $20 times 10,000 shares implies a $200,000 market cap.발음듣기

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In this case we have $10 times 10,000 shares so it implies a $100,000 market cap.발음듣기

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Now remember, the market cap is just what's left over.발음듣기

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So let me redraw those two diagrams because I feel like I'm - So for this entrepreneur you have the assets and there's no debt.발음듣기

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So the assets are kind of completely represented by the equity.발음듣기

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So if the market cap is $200,000 you're essentially saying that these assets, these operating assets, are worth $200,000.발음듣기

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So in this case, at a price of $20, we know that the enterprise value, the market enterprise value,발음듣기

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so what the market is saying the enterprise is worth, the operating assets are worth, is $200,000.발음듣기

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Now, in this case, remember the market is saying that the equity is worth $100,000.발음듣기

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Let me draw that. The market is saying that the equity is worth $100,000.발음듣기

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But of course this company has a lot of debt.발음듣기

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It has another $100,000 of debt.발음듣기

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Actually let me draw this a little bit different.발음듣기

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All right. So in this situation the market is saying that its market cap is $100,000.발음듣기

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So just to be proportional let me draw it like that.발음듣기

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Not really use that one. So $100,000, this is the equity or the market capitalization or the market value of the equity.발음듣기

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That's what the market cap is.발음듣기

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So that's just the price times the number of shares.발음듣기

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And then it has debt. If I remember correctly it has $100,000 in debt.발음듣기

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We take $100,000 in debt. $100,000.발음듣기

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And so what is it saying about the assets?발음듣기

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So the equity plus the debt, or the liabilities, is $200,000.발음듣기

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So it's saying all of the assets are worth $200,000.발음듣기

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This is all of the assets, $200,000.발음듣기

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But what we need to do, we want to figure out the value of the enterprise.발음듣기

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Not just all of the assets.발음듣기

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So if we remember there was some of the assets that were actually operational and some were non-operational.발음듣기

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So we had $10,000 of cash right there.발음듣기

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So we have $10,000 of cash.발음듣기

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So when this stock is trading at $10 it implies a market capitalization of $100,000.발음듣기

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It implies that the liabilities plus equity is $200,000.발음듣기

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So all of the assets are $200,000.발음듣기

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But if we were to subtract out the cash or the non-operating assets, what's not necessary to operate the business, we get $190,000 of enterprise value.발음듣기

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So in this case we're saying that the enterprise value is $190,000.발음듣기

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So in this case, when you look at the price to earnings you're like, wow, this is half as expensive as that.발음듣기

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This is great deal, let me buy it.발음듣기

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And I just happened to make up the numbers so even when I did the enterprise value it's only 5% cheaper.발음듣기

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Here it looks 50% cheaper.발음듣기

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Here it looks 5% cheaper.발음듣기

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And so it might be a little unintuitive.발음듣기

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To figure out the enterprise value you take, and this will be the formula you see in a lot of books.발음듣기

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Enterprise value is equal to market cap plus debt minus cash.발음듣기

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And you might be like, when I'm trying to value something why should I add debt back?발음듣기

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Debt is a negative thing. Shouldn't debt make my enterprise worth less?발음듣기

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And why am I subtracting cash?발음듣기

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Because cash is a positive thing, shouldn't that make my enterprise value more?발음듣기

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And the reason why, first, you subtract cash is, and it really should be just cash that is not associated with the enterprise.발음듣기

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And you'll see a lot of people do it in different ways.발음듣기

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Some people subtract out all cash with the argument that the company doesn't need to use any of it.발음듣기

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But the real idea behind it is to kind of capture the assets that are actually generating the profits of the enterprise.발음듣기

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And the profits of the enterprise are the operating profits.발음듣기

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And the reason why you add debt is, think about it this way.발음듣기

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If you wanted to buy out this company.발음듣기

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Let's say from this company you wanted to buy his assets at the market price.발음듣기

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How would you do it? You would have to pay, what?발음듣기

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You would have to maybe get $200,000.발음듣기

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If you got $200,000 you could buy these guys off.발음듣기

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You could pay them $100,000 and own that.발음듣기

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And then you could buy the bank out and pay them $100,000.발음듣기

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So if you paid $200,000, you would own all of this.발음듣기

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Right? This would all be your equity.발음듣기

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And then you would get $10,000 back if you know if you wanted to take this cash, right?발음듣기

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So you would have essentially paid $200,000 which is the market cap plus the debt.발음듣기

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That's what you would have to do to buy out both of those stakeholders in the company.발음듣기

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And then you would get back the cash.발음듣기

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So you would have to pay net $190,000 to own this enterprise.발음듣기

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And hopefully that makes a little bit more sense as why the enterprise value is actually described this way.발음듣기

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Now the one thing you might say, OK, Sal, you figured out how to calculate enterprise value from a share price.발음듣기

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But what if I want to go the other way around.발음듣기

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How do I figure out what a company's enterprise value should be and then figure out what its share price should be?발음듣기

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Well one metric, and there's two metrics.발음듣기

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The most common metric that's used is EBITDA.발음듣기

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EBITDA. I won't cover that now because it's a new term for you, but it means earnings before interest, taxes, depreciation, and amortization.발음듣기

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And people look at something called an enterprise value to EBITDA ratio.발음듣기

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And I'll do that in the next video.발음듣기

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But what I like to do is just think about, OK, what are the real earnings from the enterprise?발음듣기

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Well, that's the operating profit.발음듣기

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That's the operating profit, right?발음듣기

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And then you could apply a multiple to that based on what other companies are trading at or how fast it's growing.발음듣기

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Let's say in this case we're saying they're both generating $30,000 in operating profit per year.발음듣기

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Let's say that I want to apply a 5 multiple to its operating profits.발음듣기

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So let's say I want to say that EV to operating profit, which I frankly think is a better metric than EV to EBITDA--발음듣기

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and I'll cover EBITDA in a future video - let's say that I think for this industry it should be 5.발음듣기

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Let me say it should be 6.발음듣기

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6 times is a good multiple.발음듣기

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So in both those cases the operating profit was $30,000.발음듣기

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So that means that EV should be $30,000 times 6, which is equal to $180,000.발음듣기

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Now for the first guy if the EV is $180,000, if I'm saying that this thing right here, the market value, should be $180,000, then I'm implying that the equity should be worth $180,000.발음듣기

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And there are 10,000 shares.발음듣기

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So essentially I would take that EV and I would say, well, all of that's equity, there's no cash there, there's no debt, so all of this is equity.발음듣기

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So I would divide that by the shares.발음듣기

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I would say that the market cap for the first guy should be $180,000.발음듣기

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So the per-share price, the price I'd be willing to pay, is $18.발음듣기

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Because it had 10,000 shares. $18.발음듣기

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Now let's take the second guy's situation.발음듣기

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We both agree in both situations their enterprise value should be $180,000.발음듣기

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But in this guy's case, what are the assets?발음듣기

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The assets are the enterprise, $180,000 plus $10,000.발음듣기

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Plus $10,000, right? This whole left-hand side is $190,000.발음듣기

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And then if you wanted to subtract out, figure out the market cap, you would take this whole thing and then subtract out the debt to get the market cap.발음듣기

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Right? And then you would be left with this piece right here.발음듣기

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That right there, right? You were just figuring out this whole distance, subtracting out this distance.발음듣기

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So essentially you would say that the market cap is equal to the enterprise value plus the cash minus the debt.발음듣기

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And it's good to draw those balance sheets if you ever get confused.발음듣기

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Minus the debt. So the market cap is equal to $190,000 minus $100,000 is equal to $90,000.발음듣기

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And so if you divide that by 10,000 shares you'd say that I'm willing to pay $9 per share.발음듣기

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So if you believe that the enterprise value of these pizzerias are identical and that they're both worth $180,000, you should be willing to pay $18 for Company A.발음듣기