ENTERPRISE VALUE : THE MARKET VALUE OF THE WHOLE BUSINESS?

Enterprise value (EV) is an economic measure which reflects the market value of a whole business. It is a sum of claims of all the security-holders: debt holders, preferred shareholders, minority shareholders, common equity holders, and others. Enterprise value is one of the fundamental metrics used in business valuation, financial modelling, accounting, portfolio analysis, etc.

EV= Market value of Equity + Market value of Debt + Minority Interest at Market Value + Preferred Equity at Market Value – Cash & Cash Equivalent + Market Value of Non Operating Assets

RELATIVE VALUATION

Relative Valuation uses the valuation ratios of Comparable of publicly traded companies and applies that ratio to the company being valued subject to necessary adjustments. The valuation ratio typically expresses the valuation as a function of a measure of financial performance or Book Value Multiples (e.g. Revenue, EBITDA, EBIT, Earnings per Share or Book Value).

"A key benefit of Relative Valuation analysis is that the methodology is based on the current market stock price. The current stock price is generally viewed as one of the best valuation metrics because markets are considered somewhat efficient. But applying multiples is not a straight forward technique and many considerations have to be kept in mind when valuing a company. Sanity check is advised by using other valuation methods as well."

VALUATION IN INFORMATION TECHNOLOGY (IT) SECTOR COMPANIES

It is believed in the market that “Technology has the shelf life of a banana.” If that happens then what factors drives the value of Information Technology based companies whose survival is totally dependent on that. The answer of this question is not so easy as it appears to be, As whatever the size of organizations, large or small, face the same dilemma: Scare resources, choosing and deploying the right resources at right time & at right place to maximize the organization performance.

"It has been observed that the Valuation trend in the high growth segment of IT industry (E-Commerce & Social Networking) is on an upswing and though there exist limited public listed companies in this segment, majorly all trade at very high valuation multiples with corresponding high volatility owing to their sensitive business models, prone to competition with new technology and recent developments. Where would their Valuations be stabilized would be decided in times to come."