New Jersey Business Valuation Accountant Explains Enterprise Investment Value
One of the misunderstood valuation techniques is called enterprise value. Most people, you hear enterprise all the time, what does it mean?
It's Star Trek: Enterprise, but enterprise value with investments means what is the total value of the company. Not only including equity, but the debt.
And you're like, "Why would I value a company with the equity and debt?" Well, think about it, if you were to buy a company, you'd have to buy all the equity, but if there's debt there those banks want to get paid too, and you can't buy the company without taking them, paying them.
So when you look at enterprise value, it's the total value of the equity, right? Plus the debt, and then also you get to deduct, the cash because if I'm buying a business I own it, so I could use that cash to pay down the debt.
So enterprise value, to summarize, is the total value of that company.
And the important thing, like I said, to remember, when even with a small company, someone will say, "That company is only worth, you know, a hundred thousand for that deli."
But the deli has a hundred thousand dollars of debt that he borrowed, so you have to pay for the equity but you also have to pay for the debt.
So that increases is the cost of that little private company just as the same as it would increase the cost of a larger company. If you have any questions, feel free to email me.Return to Video Gallery