What is Equity Risk Premium? Equity Risk Premium is defined as the excess return that investing in equities provides over a risk-free rate. The variable is a central component in almost every risk-reward model used in finance today, but the way that it is measured may not be appropriate for forward-looking analysis. This guide will…
FCFF vs. FCFE Reconciliation Template Free Cash Flow to the Firm (FCFF) is the cash flow available to all the firm’s suppliers of capital once the firm pays all operating and investing expenditures needed to sustain the firm’s existence. Operating expenditures include the fixed and variable costs, inputs required by a company to generate its…
What is Precedent Transaction Analysis? Precedent transaction analysis is a method of company valuation where past M&A transactions are used to value a comparable business today. Commonly referred to as “precedents,” this method of valuation is common when trying to value an entire business as part of a merger/acquisition and is commonly prepared by analysts…
What is Enterprise Value (EV)? Enterprise Value (EV) is the measure of a company’s total value. It looks at the entire market value rather than just the equity value, so all ownership interests and asset claims from both debt and equity are included. EV can be thought of as the effective cost of buying a…
What is a Tax Shield? A Tax Shield is an allowable deduction from taxable income that results in a reduction of taxes owed. Tax shields differ between countries and are based on what deductions are eligible versus ineligible. The value of these shields depends on the effective tax rate for the corporation or individual (being subject…
What is Private Company Valuation? Private company valuation is a set of valuation methodologies used to determine the intrinsic value of a private company. For public companies, we can easily observe the stock price and source the number of shares outstanding from filings. The market value of the public company, also called market capitalization, is the product of…
What is the EBITDA Multiple? The EBITDA multiple is a financial ratio that compares a company’s Enterprise Value to its annual EBITDA (which can be either a historical figure or a forecast/estimate). This multiple is used to determine the value of a company and compare it to the value of other, similar businesses. A company’s…
Overview of Enterprise Value vs. Equity Value In this guide, we outline the difference between the enterprise value of a business and the equity value of a business. Simply put, the enterprise value is the entire value of the business, without giving consideration to its capital structure, and equity value is the total value of…
