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The review of enterprise value calculation is very helpful in this clip; Sal explains once again the way market capitalization can be a misleading valuation metric. He breaks down an example and plugs in numbers to get the EV, then presents the question of whether or not this is a fair number. He suggests an even stronger valuation is EV to operating profit or EV to EBITDA. Sal reviews the reasons he feels these offer sound numbers, calculating a hypothetical net income to illustrate the difference between EBIT and EBITDA. He suggests five times EBIDTA as a strong valuation, but notes relativity as an important variable. Be sure scholars have watched the videos on depreciation and amortization before viewing this one.
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