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BY : GLADYS J. CATACUTAN
A firm’s value, also known as Firm Value
(FV), Enterprise Value (EV) is an economic concept
that reflects the value of a business. It is the value that
a business is worthy of at a particular date.
Theoretically, it is an amount that one needs to pay to
buy/take over a business entity. Like an asset, the value
of a firm can be determined on the basis of either book
value or market value. But generally, it refers to the
market value of a company. EV is a more
comprehensive substitute for market capitalization and
can be calculated by following more than one
approach.
CALCULATING A FIRM’S VALUE
Value of a firm is basically the sum of claims of its
creditors and shareholders. Therefore, one of the
simplest ways to measure the value of a firm is by
adding the market value of its debt, equity, and minority
interest. Cash and cash equivalents would be then
deducted to arrive at the net value.
Where :
T = tax rate