Be sure to watch the previous vide on the P/E conundrum before this one, as it builds off of the hypothetical scenario to provide a valuation solution to the pizzerias with differing capital structures. Sal reviews the superficial market capitalization numbers, explaining they aren't a good relative valuation metric. He suggests that one must look at the enterprise value of a company for a more accurate depiction and illustrates this calculation on balance sheets, separating out nonoperating assets. He also breaks down the formula for EV, and then reverses the process by determining stock value from this number. Learners are briefly introduced to EBITDA, but this is covered much more in depth in the next video. Sal applies a six multiple to the operating profit of each pizzeria to find the per-share price.
