Robert A. Bonavito, CPA PC

RABCPA PC Blog

Enterprise Value

Many people do not realize that equity value is different from enterprise value. Equity value is mainly multiplying the number of shares outstanding by the value per share. Enterprise value is what the total enterprise is worth. In order to get that you have to add in the long-term debt plus the equity value and subtract out any cash. The reason for this is that if you were to buy a company you have to pay the debt holders and you have to pay the shareholders too. You also get the cash on the balance sheet.

Posted September 21, 2018 by Robert A Bonavito in Business Valuations

Understanding Options

There are only three reasons to use options. The first is that they provide income. You can sell an option on your stocks; it is called a covered call. The buyer will pay for that right to buy your stock. If the stock hits a strike price they have the right to buy your stock, if it does not hit the strike price you keep your stock and their fee. Either way you win. The second reason for options is protection. You can sell a “ put “on your stock at a specific price. This protects and locks in some of your gains. The third one is hedging, you could buy an option on the S&P 500. If your individual stock portfolio goes down, you actually receive money based on the S&P 500 going down. This hedge would help protect you should the market crash. But let’s face it most people use options for speculation, they buy options to get-rich-quick. Some people do make a reasonable amount of money with options. You can use leverage to buy a stock that went from $10 to $20 and make millions.

Posted September 12, 2018 by Robert A Bonavito in Educational Videos