#4 – Enterprise Value vs Goodwill vs Equity Value – Common Mistakes

Enterprise Value is a very specific concept that is often misunderstood and used too generally by inexperienced business valuers.

In this episode we pull back the curtain and discuss what Enterprise Value actual is, where it comes from, how to calculate it and how it is very different to the values obtained from most market based approaches. We discuss how to find the goodwill and other unidentified intangibles from starting with the Enterprise Value and carefully calculating the Ordinary Net Operating Assets used in the core business. From there we talk about getting to Equity Value two different ways.

We also cover calculating goodwill using a comparable transaction approach and why the numerator in a comparable multiple is not usually Enterprise Value but a modified version or even simply goodwill directly. In a market approach all that matters is the actual numerator and the actual denominator in the dataset and you have to match them exactly to avoid drifting away from the market evidence and ending up in no-man’s land.

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