Saturday, December 13, 2014

BASICS FOR BEGINNERS ....

Difference between enterprise value and market capitalization

----------------------------------------------------------------------------------------

  Courtesy - Investopedia


Enterprise value and market capitalization each measure a company's market value. The two calculations are not identical, and the terms are certainly not interchangeable. However, each offers a peek at a company's overall value and a way to compare similar companies. These numbers are also helpful in determining a fair price to pay for shares of a particular company.

Market capitalization is the most simplified way to calculate a company's size, value and, consequently, its growth and risk outlook. The calculation is a multiple of the stock's current share price and number of shares outstanding. For example, if XYZ stock is trading at $14 per share and has 2 million shares outstanding, its market capitalization is $28 million. Market capitalization can also give you an idea of the growth and risk to expect from a particular stock. Companies are classified according to market capitalization in many instances. The broad categories are large-, mid- and small-cap. Generally, companies that are considered large cap see slower growth but pose far less risk than small-cap stocks, which often experience accelerated growth but at the cost of higher risk.
Market capitalization provides an idea of the size of the business and makes it easy to identify peers within a sector. It also demonstrates that share price alone is not a gauge of a company's overall value. Just because a stock has a high share price does not necessarily mean the company is worth more.


Enterprise Value: A More Accurate Valuation


Market capitalization omits important factors in the overall valuation of a company. For example, if a company were to be purchased, market capitalization would only reflect the cost to acquire the outstanding equity. In reality, the new owner would also become responsible for all outstanding debt. Enterprise value calculates a more accurate value of a company, taking into consideration its debt obligations. To calculate enterprise value, add market capitalization to the company's outstanding preferred stock and all debt obligations, then subtract cash and cash equivalents.
Enterprise value is very commonly used in value investing to identify undervalued companies. A company with good earnings and possibly even a solid dividend may sound very appealing to many investors. This company might also have a large market capitalization. However, if you look further and calculate the company's enterprise value, you may find serious debt obligations that could pose a problem. If you compare the enterprise value of an equally well-earning company and find it has a higher enterprise value, purchasing the latter stock would be a better overall value.
---------------------------------------------------------------------------------------------------



22 comments:

  1. Hello and very very good morning sir, Its really surprising me that there are people who had been subscribe like HBJ , DSIJ, STOCK GURU etc even getting call from them but what wondering me as soon as they got call from research agency the same script being query on this board even on same day. its means people are not at all having any confidence on any of research agency. That because people do not want to do any home work. I like your comment much "DO NOT BUY ANY SCRIPT WHICH STEAL YOUR COMFORT" means study and have confidence and buy. Sir my query about global situation crude is falling people are talking about global slow down how does its affect indian econom? what type of step indian govt must take? Why govt is not reducing petrol and Diesel price? kindly Give your Opinion? Thank you Sir Jee. GOD BLESS YOU

    ReplyDelete
    Replies
    1. I think ,Indian Economy will actually benefit from a mild recession in western world.

      Delete
  2. Sir,

    Can Shakti Pimps be bought at CMP???

    ReplyDelete
    Replies
    1. Already recommended around Rs.50 level , at CMP Rs.215 neutral on it.

      Delete
  3. Sir,

    I want to understand why liberty is coming down....Dec in crude price will have a +ve impact on rubber and also festive season shd boost the earning of liberty...then why is it coming down..I have bought it at below 200...can i continue holding it given its good future??

    ReplyDelete
    Replies
    1. At CMP, Liberty returned 130 % in last on year which is very good on any parameter. Correction and consolidation is part of any market.

      Delete
  4. Dear VP Sir,
    Given the appreciation in Wimplast since your recommendation, would you still advice holding on or book profit or add more.
    Thanks

    ReplyDelete
    Replies
    1. Stock already turned as a multi bagger from suggested level . May take out at least cost

      Delete
  5. Sir,
    Please share your view on snowman logistics at current price?
    Thanks

    ReplyDelete
    Replies
    1. In a potential industry but rate is not cheap.

      Delete
  6. Hello Sir, your view on Aksharchem ltd. Thanks

    ReplyDelete
  7. Very useful and learning information. Thanks V. P. Sir

    ReplyDelete
  8. Dear Valuepick,

    Could you please tell me your opinion on DS kulakarni developers?

    ReplyDelete
  9. Good one. Thanks for the tit bit Info on weekends.. :-)

    ReplyDelete
  10. Sir,
    Is receipts-subsidies (other income) of SKM due to 100% EOU? Is it sustainable?
    It can be a good add on sheet.

    ReplyDelete
    Replies
    1. Export subsidy is available in every year as per existing norms.

      Delete
  11. Hi vp sir please give your view on zensar tech,coal india, nmdc,cairn india,vst tillers,igl, hexaware & eil

    ReplyDelete
  12. VP, I see that few of the Oil Exploration companies Selan, Aban Offshore all are at available at very low rates due to fall in crude prices. Are these good buys right now ?, or you will ring the bell when the time is right ?

    ReplyDelete
  13. Can i buy bilcare at these levels.is there any change in your view post to your recommendation

    ReplyDelete
    Replies
    1. At least five times I suggested to all holding Bilcare to send a mail to me and explained my stand individually

      Delete