Small Business Valuation Methods: How to Evaluate

Small, Privately-Owned Businesses 1st Edition

Yannick Coulon 2025 instant download

Order directly from ebookmass.com

( 4.7/5.0 ★ | 227 downloads )

https://ebookmass.com/product/small-business-valuation-methods-how-
to-evaluate-small-privately-owned-businesses-1st-edition-yannick-
coulon/
 Small Business Valuation Methods: How to Evaluate Small,
Privately-Owned Businesses 1st Edition Yannick Coulon

EBOOK

Available Formats

■ PDF eBook Study Guide Ebook

EXCLUSIVE 2025 ACADEMIC EDITION – LIMITED RELEASE

Available Instantly Access Library

Here are some recommended products for you. Click the link to
download, or explore more at ebookmass.com

Small Business Management 17th Edition, (Ebook PDF)

https://ebookmass.com/product/small-business-management-17th-edition-
ebook-pdf/

Small Business Taxes Made Easy, Fourth Edition Rosenberg

https://ebookmass.com/product/small-business-taxes-made-easy-fourth-
edition-rosenberg/

Small Business: An Entrepreneur’s Business Plan – Ebook

PDF Version

https://ebookmass.com/product/small-business-an-entrepreneurs-
business-plan-ebook-pdf-version/

Social Media for Small Business Franziska Iseli

https://ebookmass.com/product/social-media-for-small-business-
franziska-iseli/
Small Town Getaway Ruby Hill

https://ebookmass.com/product/small-town-getaway-ruby-hill/

Entrepreneurship and Small Business Management – Ebook PDF

Version

https://ebookmass.com/product/entrepreneurship-and-small-business-
management-ebook-pdf-version/

Small Business Management: Creating a Sustainable

Competitive Advantage

https://ebookmass.com/product/small-business-management-creating-a-
sustainable-competitive-advantage/

Small Molecule Drug Discovery: Methods, Molecules and

Applications 1st Edition Andrea Trabocchi (Editor)

https://ebookmass.com/product/small-molecule-drug-discovery-methods-
molecules-and-applications-1st-edition-andrea-trabocchi-editor/

eTextbook 978-1285866383 Small Business Management:

Entrepreneurship and Beyond

https://ebookmass.com/product/etextbook-978-1285866383-small-business-
management-entrepreneurship-and-beyond/
Small Business
Valuation Methods
How to Evaluate Small,
Privately-Owned Businesses

Yannick Coulon
Small Business Valuation Methods
 Yannick Coulon

Small Business
Valuation Methods
How to Evaluate Small, Privately-Owned Businesses
Yannick Coulon
Brest Business School
ESC Bretagne Brest
Brest, France

ISBN 978-3-030-89718-5 ISBN 978-3-030-89719-2 (eBook)

https://doi.org/10.1007/978-3-030-89719-2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022

This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.

Cover illustration: © Melisa Hasan

This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 Preface

Valuation is the natural starting point toward buying or selling a business

or securities through the stock market. Essential in wealth manage-
ment, the valuation process allows the measurement of the strengths and
weaknesses of a company and provides a historical reference for its devel-
opment. Determining the value of a business is a complex task that is
more like abstract art than an exact science.
Moreover, the concept of company value is better defined by a range
of possible values than by an absolute and definitive dollar amount, since
each method is associated with many assumptions and sensitive variables.
Subjectivity and biases may also be obstacles to a fair valuation analysis,
a touch of behavioral finance is therefore necessary.
This book is not an academic and exhaustive list of all the existing valu-
ation models; on the contrary, it focuses on essential methods grouped
into three global approaches: the asset-based approach, the fundamental
or discounted cash flow (DCF) approach, and the comparable company
or market approach. The models explained are applicable to both small
unlisted companies and large public companies.
Ultimately, this guide provides the financial theory and valuation basics
needed to estimate the value of a small business.

v
vi PREFACE

A Practical Book
As the name suggests, this is a practical book.
Many pedagogical cases (15) and illustrations (33) underpin its prag-
matic and didactic content.
However, it also contains enough theories to satisfy an expert audience.
For example, the author guides the junior business appraiser by indi-
cating benchmarks that can be applied directly. A company appraisal
cannot reach perfection, but requires a great deal of humility and prag-
matism, especially in the small- and medium-sized enterprise segment.

The Target of the Book

This book is ideal for business owners and additional players in the busi-
ness world, legal professionals, accountants, wealth management advisers,
and bankers, while also of interest to business school students and
investors.

The Purpose of the Book

The objective is to offer the reader the necessary tools to value a small
company or—more modestly, to provide the ability to understand, give
constructive feedback, and improve an appraisal report performed by a
valuation professional.

The Limits of the Book

The book focuses on the theme of valuation.
It does not address the buyout of a business with all of its human,
legal, fiscal, or negotiating strategy components.
It establishes the fair value of an independent entity, not the price of a
controlling interest in a company benefiting from synergies.
The goal is not to deprive the business owner of the valuable advice of
a recognized expert in the field of business acquisitions.
Further, this book does not aim to cover taxation, accounting, or
consolidation principles, as there is already a multitude of high-quality
books on these subjects.
 PREFACE vii

Only chartered accountants or business lawyers are fully familiar with

the accounting, legal, or tax environment of the companies for which they
are responsible.

Practical Reading of the Book

The reader can read this book following two approaches:
In the sequential theoretical approach, the reader discovers each
method, which is accompanied by practical, small case studies.
In the pragmatic approach, readers begin directly with a synthetic
case study on Company SEGA, a golf management company. Subse-
quently, they can gradually reference the theoretical points of the previous
chapters.

A special thank you goes to Tula Weis, Executive Editor, to Uma Vinesh,
Project Coordinator at Palgrave Macmillan, and to Zobariya Jidda, Project
Manager.
Thank you to Cambridge Proofreading LLC and to Scribbr for
improving my English writing style.
Je salue aussi mes deux enfants, Samantha et Fabian.

Brest, France Yannick Coulon

 Contents

1 Enterprise Value, Company Value, and Other Essential

Financial Data 1
1.1 Definition of Two Essential Aggregates 1
1.1.1 Enterprise Value 2
1.1.2 The Fair Market Value of Equity 4
1.1.3 Case Study Showing the Differences Between
the Two Aggregates 5
1.1.4 Fundamental Equations 8
1.1.5 Market Efficiency and Behavioral Finance 10
1.2 The Strategic Positioning of a Company 12
1.3 Method Comparison and a Few Recommendations 15
1.4 Key Takeaways and Limitations 18
References and Further Reading 19
2 Asset-Based Approach to Valuation 21
2.1 The Net Worth of a Company 22
2.2 Adjusted Net Asset Value Method 26
2.2.1 Essential Income Statement Adjustments 28
2.2.2 Essential Asset Adjustments 37
2.2.3 Essential Equity and Liability Adjustments 43
2.2.4 Case Study of a Family Owned Real Estate
Investment Company 48
2.2.5 Adjusted Net Asset Value Case Study 49
2.3 The Capitalized Excess Earnings or Goodwill Method 53

ix
x CONTENTS

2.3.1 Intangible Assets and Goodwill 53

2.3.2 Implementation of the CEEM or Goodwill
Method 53
2.3.3 Goodwill Valuation Case Study 60
2.4 Key Takeaways and Limitations 69
References and Further Reading 70
3 Fundamental Value or DCF Approach to Valuation 71
3.1 Fundamental Value Definition 71
3.2 The Two-Stage DCF Method 73
3.3 Generalities on the Forecast and Scenarios 76
3.4 Free Cash Flows 79
3.4.1 Free Cash Flow to the Firm 79
3.4.2 Free Cash Flow to Equity 81
3.4.3 Company SEGI’s Free Cash Flows Case Study 82
3.4.4 Free Cash Flow Summary 87
3.5 Cost of Equity 87
3.5.1 The Methods Used 88
3.5.2 The Issues and Ambiguities of the Risk
Premiums 90
3.5.3 Estimated Cost of Equity for a Small Business 91
3.5.4 Implementation of the Build-Up Method 94
3.6 Weighted Average Cost of Capital (WACC) 97
3.7 Dividend Discount Model 100
3.8 DCF Case Study (Company SEGY) 101
3.8.1 Free Cash Flows and Assumptions 101
3.8.2 Indirect DCF Method 102
3.8.3 Direct DCF Method 105
3.8.4 Estimated Equity Value 106
3.9 Key Takeaways and Limitations 107
References and Further Reading 107
4 Market Approach to Valuation 109
4.1 Precedent Transaction Analysis 110
4.2 The P/E Multiple Approach 110
4.2.1 Potential Valuation Case Study 112
4.2.2 P/E Dynamics 113
4.2.3 P/E Limitations 117
4.3 The EV/EBITDA Multiple Approach 118
4.4 Other Comparative Valuation Approaches 120
 CONTENTS xi

4.4.1 The Price-to-Book Value Multiple 120

4.4.2 Cash Flow Multiples 121
4.4.3 Valuation with a Non-Financial Multiple 121
4.5 Market Multiple Adjustments 122
4.6 Case Study with the P/E and EV/EBITDA Multiples 123
4.6.1 Company Y’s Financial Data 123
4.6.2 Comparison Between the P/E and EV/EBITDA
Multiples 124
4.6.3 Equity Value Calculation with the Two Sector
Multiples 125
4.6.4 Equity Value Calculation with the Leader
Multiples 126
4.6.5 Equity Value Calculation with the Laggard
Multiples 126
4.6.6 Equity Value Overview 127
4.6.7 The Business Valuation Professional’s Decision 127
4.6.8 The Drawbacks of Historical Averages 128
4.7 Key Takeaways and Limitations 129
References and Further Reading 130
5 FullValuation Case Study (Company SEGA) 131
5.1 Generalities on the Applied Valuation Methods 132
5.2 Presentation of Company SEGA 134
5.3 Adjusted Net Asset Value 138
5.3.1 The Adjusted Net Asset Value Method 139
5.3.2 The CEEM or Goodwill Method 141
5.3.3 Asset-Based Equity Value Estimates 146
5.4 Discounted Cash Flow Methods 146
5.4.1 Valuation According to the Optimistic-Case
Scenario 147
5.4.2 Valuation According to the Pessimistic-Case
Scenario 150
5.4.3 DCF Value Estimates 153
5.5 Precedent Transaction Analysis and Market Multiple
Valuation 153
5.5.1 Precedent Transaction Analysis 153
5.6 Adjusted P/E Multiple 154
5.6.1 Dividend Discount Model 155
5.6.2 EV/EBITDA Multiple Valuation 157
xii CONTENTS

5.6.3 Market Value Estimates 157

5.7 Estimated Equity Value of Company SEGA 158
5.7.1 Results 158
5.7.2 The Valuation Professional’s Decision 159
References and Further Reading 160

General Bibliography, Webography, and Further Reading 163

Index 165
 About the Author

Yannick Coulon has 15 years of banking experience with the Suez Group
in France and UBS in Switzerland, and 10 years of experience with
Iomega Corp as a Product Manager for the Zip drive in Europe.
Yannick also teaches finance, including behavioral finance, at a business
school in Brittany, France (BBS). He also teaches at ENSTA Bretagne, an
engineering and research group.
He owns and manages four golf courses with his brother Emmanuel in
western and southern France.
He, therefore, has dual experience in teaching and managing small
private companies.
He has previously written five books:

– Le guide pratique de la valorisation d’une PME, Gualino, April 2021

– Rational investing with ratios, Palgrave MacMillan, Jan 2020
– L’essentiel des ratios financiers, Maxima, 2018
– Guide pratique de la finance d‘entreprise, Gualino, 2017
– Guide pratique de la finance comportementale, Gualino, 2016

www.linkedin.com/in/yannick-coulon-auteur-finance.

xiii
 List of Figures

Fig. 1.1 Enterprise value and equity at FMV 6

Fig. 1.2 The five companies A, B, C, D and E at fair market value 7
Fig. 1.3 The cash flows and their corresponding aggregates 9
Fig. 1.4 The Michael E. Porter’s matrix 13
Fig. 1.5 The main features of the three valuation approaches 16
Fig. 1.6 Valuation process 16
Fig. 2.1 Balance sheet uncertainties in valuation 23
Fig. 2.2 Adjusted equity methodology 27
Fig. 2.3 ANAV method 28
Fig. 2.4 Tangible and Intangible assets 55
Fig. 2.5 Excess earnings overview 57
Fig. 2.6 Total equity methodology 58
Fig. 2.7 Excess earnings duration and type 61
Fig. 2.8 Intangible equity value calculation with the NPV function
on Microsoft Excel 65
Fig. 3.1 Present value and discount rates 72
Fig. 3.2 DCF calculation (5-year forecast) 74
Fig. 3.3 DCF method used for the EV or equity value calculation 75
Fig. 3.4 The two main free cash flows 79
Fig. 3.5 Non-cash working capital investment (from year n to year
n + 1) 85
Fig. 3.6 FCFF and FCFE definitions 87
Fig. 3.7 Estimated cost of equity per size of company 95
Fig. 3.8 Build-up method and the small business risk premiums 95
Fig. 3.9 The WACC formula 97

xv
xvi LIST OF FIGURES

Fig. 3.10 Estimated WACC for different levels of risk 100

Fig. 3.11 SEGI’s EV calculation 104
Fig. 3.12 SEGI’s equity value calculation 106
Fig. 4.1 Trailing and forward P/E 111
Fig. 4.2 Risk factors and their effects on the P/E 118
Fig. 4.3 EV and Equity at FMV 119
Fig. 4.4 Overview of Equity Value Estimates for Company Y 127
Fig. 5.1 The 4 key aggregates of the balance sheet 132
Fig. 5.2 Free Cash Flows used for the calculation of SEGA’s EV
(Optimistic Scenario) 150
Fig. 5.3 Free Cash Flows used for the Calculation of SEGA’s EV
(Pessimistic Scenario) 152
 List of Tables

Table 2.1 Balance sheet of Company New Growth, in £1,000 24

Table 2.2 New growth’s net operating assets, in £1,000 24
Table 2.3 New Growth at Fair Market Value, in £1,000 25
Table 2.4 Epsilon’s income statement, in euros 32
Table 2.5 Modified income statement of Epsilon showing
EBITDA, in euros 32
Table 2.6 Epsilon’s adjusted income statement 36
Table 2.7 Company SEGI’s balance sheet, in e 50
Table 2.8 SEGI’s Income Statement, in e 50
Table 2.9 SEGI’s normalized income statement, in e 51
Table 2.10 SEGI’s adjusted balance sheet, in e 52
Table 2.11 Euphoria’s simplified income statement, in $ 61
Table 2.12 Euphoria’s adjusted balance sheet with the ANAV
Method, in $ 62
Table 2.13 Overview of Goodwill estimates 68
Table 2.14 Euphoria’s new Balance Sheet Incorporating Intangible
Assets 68
Table 3.1 SEGI’s operating cash flow forecast, in e 82
Table 3.2 SEGI’s operating cash flow forecast, in e 83
Table 3.3 SEGI’s investment forecast, in e 83
Table 3.4 SEGI’s investment ratios 84
Table 3.5 SEGI’s free cash flow to the firm, in e 84
Table 3.6 Borrowing plan and loan repayment schedule, in e 86
Table 3.7 SEGI’s FCFE, in e 87
Table 3.8 Adjusted betas, sector risks and D/E ratios 92

xvii
xviii LIST OF TABLES

Table 3.9 Possible adjusted equity risk premiums 93

Table 3.10 Deviations of adjusted equity risk premiums around
a D/E of 50% 93
Table 3.11 Possible risk premiums 94
Table 3.12 Possible cost of equity, from the lowest to the highest
discount rate 94
Table 3.13 Optimal D/E ratio 98
Table 3.14 Range of possible WACC 98
Table 3.15 SEGI’s FCFF 101
Table 3.16 SEGI’s FCFE 102
Table 4.1 Alpha’s balance sheet, book value, $, in millions 114
Table 4.2 Beta’s balance sheet, book value, $, in millions 114
Table 4.3 Alpha and beta financial ratios, $, in millions 114
Table 4.4 Alpha and beta adjusted P/E, $, in millions 115
Table 4.5 Trailing/Forward P/E and the Growth Potential 116
Table 4.6 Price or EPS adjustments when interest rates rise 116
Table 4.7 Market data and ratios for the 4 companies, A, D, C,
and Y, in $ million 124
Table 4.8 Comparison between the P/E and EV/EBITDA
Multiples 125
Table 5.1 SEGA’s balance sheet, in e 135
Table 5.2 SEGA’s income statement, in e 136
Table 5.3 Projected SEGA’s income statement, year 1, in e 136
Table 5.4 Projected net operating cash flows, in e 136
Table 5.5 Forecast with a low level of investments required, in e 137
Table 5.6 Optimistic SEGA’s FCFF, in e 137
Table 5.7 Pessimistic SEGA’s FCFF, in e 137
Table 5.8 Normalized income statement, in e 139
Table 5.9 Adjusted balance sheet, in e 141
Table 5.10 SEGA’s Tangible assets and Tangible equity 143
Table 5.11 SEGA’s balance sheet with goodwill and total equity,
in e 144
Table 5.12 SEGA’s balance sheet with Goodwill and total equity,
in e 146
Table 5.13 Optimistic SEGA’s FCFF 147
Table 5.14 SEGA’s investments on sales ratio 148
Table 5.15 Pessimistic SEGA’s FCFF, in e 150
Table 5.16 SEGA’s investments on sales ratios 151
 CHAPTER 1

Enterprise Value, Company Value, and Other

Essential Financial Data

Abstract This chapter outlines the essential metrics utilized in valua-

tion. The core of the chapter focuses on enterprise value and equity
value. The final portion of this chapter addresses the importance of
understanding a company’s positioning and strategy as a prerequisite for
analyzing its financial statements. Several short case studies and illustra-
tions are included. Key takeaways on these metrics and their limitations
conclude the chapter.

Keywords Behavioral finance · Capital employed · Confirmation bias ·

Core and non-core assets · Efficient market · Enterprise value (EV) ·
Excess or surplus cash · Fair market value (FMV) · Financial bubbles ·
Michael E. Porter’s strategy matrix · Net assets · Net operating assets ·
Operating and non-operating assets · Strategy and positioning

1.1 Definition of Two Essential Aggregates

It is of paramount importance to understand the differences between
enterprise value (EV) and equity value.
Let us start with enterprise value.

© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2022
Y. Coulon, Small Business Valuation Methods,
https://doi.org/10.1007/978-3-030-89719-2_1
2 Y. COULON

1.1.1 Enterprise Value

Enterprise value or firm value is the fair market value (FMV) of core
operating assets. EV is also the market value of capital employed.
It seems therefore logical to focus first on the definitions of operating
assets and consequently capital employed.
Capital Employed

Capital employed is the total amount of capital that has been invested in
a company for generating its core operating profit.
By construction, this amount is equivalent to the sum of all core
operating assets of the company.

Non-core assets

Non-core assets are non-essential and non-strategic assets that are not
required for running the company’s core operations. These non-operating
assets or excess assets do not generate recurring EBITDA (Earnings
Before Interest, Taxes, Depreciation, and Amortization) or EBIT (Earn-
ings Before Interest and Taxes).
Assets such as excess or surplus cash, investments in marketable secu-
rities or non-strategic minority holdings (non-consolidated) belong to
this asset category. Land and real-estate investments can also be non-core
assets if they are not necessary for the company’s business operations (i.e.,
they were probably necessary in the past but no longer in use today or
discontinued). If sold, the net proceeds would boost the cash holdings
of the company and could be used to reduce debt. The proceeds could
also be used to pay dividends. These non-core assets may generate non-
operating income (interest or rent) and expenses (property tax) but the
net impact on the company’s bottom line is usually limited.

Net Operating Assets

The net operating assets are assets used in the operations of the busi-
ness including the operating fixed assets (tangible and intangible) and the
networking capital from operations.
Current operating liabilities are deducted from current operating assets
to form the networking capital from operations.
 1 ENTERPRISE VALUE, COMPANY VALUE … 3

Net Operating Assets = Operating Assets − Operating Liabilities

Definition of Enterprise Value

Enterprise value is commonly used as an important valuation tool by

M&A companies (Mergers and Acquisitions). The EV aggregate has also
become increasingly important for stock market analysis when using ratios
such as EV to EBITDA multiple and all its possible variations. EV multi-
ples are valuation metrics that are highly complementary to the classic
price to earnings ratio (P/E ratio).
Enterprise value is the fair market value of the core operating or busi-
ness assets of a company. It is a strong and proven concept that clearly
links operating assets, debt, and cash. It can be explained either by the
asset side or the equity side of the balance sheet, and thus it has a dual
definition.
Enterprise value can also be defined as the theoretical takeover price
of a company and is inclusive of the payoff of all capital claims (i.e.,
equity + financial debt obligations). This takeover price would allow for
the purchase of the company’s entire capital base and the repayment of
all incurred financial debt (including lease obligations), while enabling
the buyer to benefit from non-core assets (including excess cash) that
could contribute to its debt repayment. In this way, we can understand
enterprise value as the price tag of a “debt-free” company.
Enterprise value also represents the total amount of capital invested by
common or preferred shareholders, long-term or short-term debt holders,
or any additional direct or indirect long-term provider of funds to the
company. Even a short-term loan provider is considered a long-term
capital investor because short-credit facilities are typically renewed on an
annual basis.
A trade debt (under accounts payable) is not an interest-bearing debt
and should not be included in the category of capital employed. The
goal of a supplier is to deliver the goods or services that are needed
throughout the course of the business cycle, not to provide funding.
Moreover, accounts payable are already included in the calculation of the
non-cash working capital from operations (i.e., networking capital).
One area of difficulty is minority interest (non-controlling interest)
which is added to provide consistency within EV ratios. If the parent
4 Y. COULON

company’s EBITDA includes 100% of the subsidiary’s EBITDA, it seems

fair to include 100% of the complete long-term capital of the subsidiary.
It is also consistent with the dual aspect definition of EV, as 100% of the
subsidiary’s operating assets are consolidated. If minority interest were
not included on the equity and liability side, both definitions of enterprise
value would result in different and inconsistent results.
As a reminder, for a consolidated balance sheet, non-controlling
interest (NCI) or minority interest represents the portion of total capital
not directly owned by the shareholders of the parent company (NCI is
listed under the equity section).

EV is valued at fair market value

The terms market price, fair market value, market value, mark to market,
and market capitalization are used interchangeably throughout the book,
but they are clearly defined as a separate category than book value. The
term fair market value (FMV) will be used for assets outside of real-estate
properties. The underlying assumption is that is the price of an asset must
be reasonably fair and reliable, unless the asset is liquidated.
For a listed company traded on a reasonably efficient market, the
market cap can replace the fair market value of equity.
For small caps that are quoted on markets with poor liquidity, using
market cap may be problematic, and thus the term fair market value of
equity.
The term fair before market value emphasizes the fact that the market
must be efficient. In this way, the price reflects the fundamental or
intrinsic value.
With behavioral finance, however, we know that this is not always true.
The existence of speculative bubbles is a case in point, and the existence
of alpha (i.e., abnormal excess return) proves that stocks are often under
or overvalued. Therefore, the term market value remains an estimation
of the fair value of equity.

1.1.2 The Fair Market Value of Equity

Enterprise value is often confused with company value, or in other words,
it is confused with the fair market value of its equity or its market capi-
talization in an efficient market. It is crucial to note that they are not
equivalent to one another.
 1 ENTERPRISE VALUE, COMPANY VALUE … 5

Enterprise Value  = Equity Value

If the market is efficient, the company (equity) value should reflect its
level of debt and therefore risk. Moreover, it should reflect the level of
non-core assets (incl. excess cash) that a company controls.
For example, when you buy a company (its equity), you own the assets
and benefit from the cash, but you also assume the debt. The more
productive assets a company controls and the more cash a company holds,
the less debt a company carries and thus the more valuable a company is.

Enterprise value is the value of the entire business operations of a firm,

while equity value is the market capitalization of a firm or the fair market
value of its equity for a non-listed company.

Both metrics are equal only when financial debt is equal to excess cash
or alternatively if both financial debt and excess cash are equal to zero.

EV = FMV equity + FMV (debt − excess cash or assets) = 0

 
EV = FMV equity privately held company
With FMV equity is defined as the fair market value of equity.

Figure 1.1 provides an overview of enterprise value and equity value at

fair market value.

1.1.3 Case Study Showing the Differences Between the Two

Aggregates
A simple example will help the reader better understand the fundamental
equation that links net operating assets at fair value (or EV), fair value of
equity, debt, and excess cash.
Let us take five comparable companies with equivalent operating assets
(i.e., same business assets) generating equivalent operating income.
What is the fair value of equity for companies A, B, C, D, and E?
Figure 1.2 shows the simplified balance sheets of the five companies.
The fundamental equation defining a balance sheet appears as follows:
6 Y. COULON

Balance Sheet at FMV

Enterprise Value
(Net operaƟng assets at fair market value)

+ = Fair Market Value

of Equity
Excess Cash
-
Gross Debt

Balance Sheet

Fair Market Value of Equity

Enterprise Value
(Net operaƟng assets at fair market value)
= +
Net Debt

Net debt = interest-bearing debt, short- & long-term + lease obligaƟons - excess cash (or non-core assets)

Fig. 1.1 Enterprise value and equity at FMV

 
Assets + Cash = Equity + Liabilities Operating + Financial Debt

And from book values to fair market values (FMV):

EV = Operating Assets − Current Operating Liabilities

= Net Operating Assets (at FMV)
EV + Cash = FMV Equity + Financial debt

FMV Equity = EV + Cash − Financial Debt

Consequently,
Random documents with unrelated
content Scribd suggests to you:
 Ethics - Study Plan
Spring 2023 - Laboratory

Prepared by: Associate Prof. Miller

Date: August 12, 2025

Summary 1: Historical development and evolution

Learning Objective 1: Theoretical framework and methodology
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Learning Objective 2: Historical development and evolution
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Learning Objective 3: Critical analysis and evaluation
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Learning Objective 4: Theoretical framework and methodology
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 4: Diagram/Chart/Graph]
Learning Objective 5: Current trends and future directions
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Research findings and conclusions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 6: Literature review and discussion
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Study tips and learning strategies
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Remember: Ethical considerations and implications
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Practical applications and examples
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Conclusion 2: Problem-solving strategies and techniques
Definition: Key terms and definitions
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Practical applications and examples
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Practical applications and examples
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 13: Diagram/Chart/Graph]
Example 13: Study tips and learning strategies
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Best practices and recommendations
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Remember: Experimental procedures and results
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Assessment criteria and rubrics
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Critical analysis and evaluation
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Definition: Literature review and discussion
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 19: Diagram/Chart/Graph]
Example 19: Problem-solving strategies and techniques
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Topic 3: Historical development and evolution
Definition: Theoretical framework and methodology
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Historical development and evolution
• Literature review and discussion
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Research findings and conclusions
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 23: Diagram/Chart/Graph]
Important: Historical development and evolution
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Statistical analysis and interpretation
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 25: Diagram/Chart/Graph]
Important: Learning outcomes and objectives
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 26: Diagram/Chart/Graph]
Practice Problem 26: Best practices and recommendations
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 27: Comparative analysis and synthesis
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Interdisciplinary approaches
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Research findings and conclusions
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Methodology 4: Fundamental concepts and principles
Practice Problem 30: Statistical analysis and interpretation
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 31: Diagram/Chart/Graph]
Important: Research findings and conclusions
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Historical development and evolution
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Current trends and future directions
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 34: Diagram/Chart/Graph]
Definition: Practical applications and examples
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 35: Theoretical framework and methodology
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 36: Diagram/Chart/Graph]
Practice Problem 36: Experimental procedures and results
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 37: Diagram/Chart/Graph]
Definition: Best practices and recommendations
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 38: Diagram/Chart/Graph]
Practice Problem 38: Assessment criteria and rubrics
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Remember: Assessment criteria and rubrics
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Appendix 5: Fundamental concepts and principles
Note: Practical applications and examples
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 41: Critical analysis and evaluation
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 42: Diagram/Chart/Graph]
Definition: Best practices and recommendations
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Practice Problem 43: Fundamental concepts and principles
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Important: Comparative analysis and synthesis
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 45: Diagram/Chart/Graph]
Practice Problem 45: Historical development and evolution
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Definition: Assessment criteria and rubrics
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Fundamental concepts and principles
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 48: Diagram/Chart/Graph]
Key Concept: Current trends and future directions
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Key terms and definitions
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Test 6: Assessment criteria and rubrics
Key Concept: Assessment criteria and rubrics
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Fundamental concepts and principles
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Practice Problem 52: Assessment criteria and rubrics
• Problem-solving strategies and techniques
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 53: Ethical considerations and implications
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Learning outcomes and objectives
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 55: Learning outcomes and objectives
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Current trends and future directions
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Fundamental concepts and principles
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Note: Learning outcomes and objectives
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 59: Diagram/Chart/Graph]
Example 59: Historical development and evolution
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice 7: Fundamental concepts and principles
Key Concept: Historical development and evolution
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 61: Diagram/Chart/Graph]
Example 61: Statistical analysis and interpretation
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Key Concept: Problem-solving strategies and techniques
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Remember: Practical applications and examples
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 64: Diagram/Chart/Graph]
Important: Learning outcomes and objectives
• Case studies and real-world applications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 65: Diagram/Chart/Graph]
Important: Theoretical framework and methodology
• Best practices and recommendations
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 66: Learning outcomes and objectives
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Problem-solving strategies and techniques
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Case studies and real-world applications
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
[Figure 69: Diagram/Chart/Graph]
Note: Theoretical framework and methodology
• Statistical analysis and interpretation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Summary 8: Problem-solving strategies and techniques
Practice Problem 70: Problem-solving strategies and techniques
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Theoretical framework and methodology
• Current trends and future directions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
[Figure 72: Diagram/Chart/Graph]
Definition: Theoretical framework and methodology
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Study tips and learning strategies
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Learning outcomes and objectives
• Research findings and conclusions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Important: Fundamental concepts and principles
• Critical analysis and evaluation
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Research findings and conclusions
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 77: Practical applications and examples
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Note: Critical analysis and evaluation
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Important: Assessment criteria and rubrics
• Experimental procedures and results
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Methodology 9: Interdisciplinary approaches
Note: Assessment criteria and rubrics
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Example 81: Study tips and learning strategies
• Assessment criteria and rubrics
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Example 82: Comparative analysis and synthesis
• Comparative analysis and synthesis
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Practice Problem 83: Research findings and conclusions
• Practical applications and examples
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Practice Problem 84: Learning outcomes and objectives
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Example 85: Theoretical framework and methodology
• Study tips and learning strategies
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
[Figure 86: Diagram/Chart/Graph]
Important: Key terms and definitions
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Definition: Fundamental concepts and principles
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Theoretical framework and methodology
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
Example 89: Ethical considerations and implications
• Interdisciplinary approaches
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Section 10: Best practices and recommendations
Key Concept: Theoretical framework and methodology
• Fundamental concepts and principles
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Important: Ethical considerations and implications
• Key terms and definitions
- Sub-point: Additional details and explanations
- Example: Practical application scenario
Formula: [Mathematical expression or equation]
[Figure 92: Diagram/Chart/Graph]
Definition: Current trends and future directions
• Historical development and evolution
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Remember: Case studies and real-world applications
• Theoretical framework and methodology
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Practice Problem 94: Theoretical framework and methodology
• Ethical considerations and implications
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Key Concept: Research findings and conclusions
• Learning outcomes and objectives
- Sub-point: Additional details and explanations
- Example: Practical application scenario
- Note: Important consideration
Formula: [Mathematical expression or equation]
Welcome to our website – the perfect destination for book lovers and
knowledge seekers. We believe that every book holds a new world,
offering opportunities for learning, discovery, and personal growth.
That’s why we are dedicated to bringing you a diverse collection of
books, ranging from classic literature and specialized publications to
self-development guides and children's books.

More than just a book-buying platform, we strive to be a bridge

connecting you with timeless cultural and intellectual values. With an
elegant, user-friendly interface and a smart search system, you can
quickly find the books that best suit your interests. Additionally,
our special promotions and home delivery services help you save time
and fully enjoy the joy of reading.

Join us on a journey of knowledge exploration, passion nurturing, and

personal growth every day!

ebookmass.com