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This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

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Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Plans & Membership

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Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Group and Operating Enterprise Valuation

Group and Operating Enterprise Valuation

Sarah Martin

30 years: Corporate Valuations

In this video, Sarah delves deeper into EV multiple valuations and then explains the difference between operating enterprise value and group enterprise value (total enterprise value) and how to calculate the correct underlying multiple.

In this video, Sarah delves deeper into EV multiple valuations and then explains the difference between operating enterprise value and group enterprise value (total enterprise value) and how to calculate the correct underlying multiple.

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Group and Operating Enterprise Valuation

8 mins 20 secs

Key learning objectives:

  • Understand the difference between operating EV and total EV (group EV)

  • Understand the adjustments to calculate the correct underlying EV/EBITDA multiple

  • Understand the complications caused by NCIs in calculating EV multiples

Overview:

The enterprise value of a firm is the value of the whole business (equity value plus the net debt and equivalents). Applying a multiple to enterprise valuations allows us to get around some of the problems involving equity multiples such as lack of comparable capital structure.

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Summary

What do EV valuations tell us and why do we use them?

EV can be thought of as the total value of the group, or the purchase price that would have to be paid to acquire the whole group, including assumed debt. When buying a business, it is best to look at the enterprise value of the business, especially as it is likely that the target firm’s capital structure would change. Additionally, equity valuations can be distorted because the peer group members have different capital structures to the firm we are valuing and this can be overcome by using enterprise valuations for the peer group and for the company being valued.

What is the difference between operating enterprise value and total/group enterprise value?

There are two types of enterprise value - operating EV and total or group EV. The enterprise value of the underlying business (under the main group) is the operating enterprise value. However, a group may have other assets that are not contributing to EBITDA. However, these assets are still of value to the group’s shareholders so the market value of these assets are included in the group or total EV. As they are not core to the underlying business and do not contribute to EBITDA. Hence, when working out the correct underlying multiple for the core business, this multiple must be based on the operating EV and not the total EV.

What are the adjustments to work out the correct underlying multiple?

If the market capitalisation of a group is $1 billion and it has a net debt of $500 million, you then the group EV is $1.5 billion. If the group has non-core assets worth a total of $213 million and these assets are not contributing to EBITDA. Hence, the EBITDA multiple is biased up because the EV of $1.5 billion includes them while the EBITDA would not.

How to work out the correct multiple for the underlying business?

We must exclude the value of the assets that do not contribute to EBITDA from the EV. In the case here, to work out the correct EBITDA multiple, we subtract $213 million from the market capitalisation of $1 billion, and use an adjusted EV of $787 million. Adding this to the net debt gives us $1.387 billion and the correct underlying EBITDA multiple would be 13.5. 

What are complications due to NCIs?

NCIs are investors that own shares in the operating companies below the level of the listed holding company. The equity market value or share price of the holding company will be biased down because the Holdco shareholders know that they do not own 100% of the OpCo. However, the HoldCo will consolidate 100% of the EBITDA of the OpCo in its reported results. We have a mismatch because our equity value is based on 70% of the OpCo’s EBITDA but the reported EBITDA is for 100% of the OpCo’s EBITDA. The market value of the NCI’s 30% stake must be calculated and added to the market value of the equity (and hence to the enterprise value).

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Sarah Martin

Sarah Martin

Sarah Martin has a degree in economics from the London School of Economics and stock exchange and regulatory qualifications from London and New York. She has worked in investment banking for 17 years, as well as private equity transactions and as an expert witness in financial trials. She became a financial trainer 15 years ago and specialises in credit, distressed debt, and valuation. Recent assignments have included the European Central Bank, the European Investment Bank, the EBRD, Gibbs Business School in Johannesburg, the Bahrain Institute of Business Finance, the Bank of China, BBVA, the African Development Bank, Siemens, Carnegie Bank, Rand Merchant Bank, the Hamburg Central Bank, and Mizuho Bank.

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