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are going to learn a topic a tutorial on equity value so you can see a graph over

here and what we notice over here that we are comparing market cap of three

companies Exxon Apple and Amazon so let’s have a look at this graph of equity

market value of Exxon Apple and Amazon and we note that in 2007 in 2008

Exxon was far ahead in terms of the equity value it’s quite visible compared

to the Amazon and Apple however over the years you can see the market value of

the equity has increased and now they’re leading

companies basically you can say that over the years Apple and Amazon’s market value of the equity has significantly increased and now they are leading

companies by equity market value so does equity value even matter

that’s the question over here you can see the Exxon over here and this new

graph look at this of Apple and same with the Amazon even Amazon started

growing so why this thing is it equity what significance does equity value play

no issues let’s deal with this equity value now equity value is basically what

this right equity value no this will it is enterprise value EV equity value is

basically your summation or the sum total of the value of the shareholders

have made available for the business so equity value is also called

as your market cap right and can be calculated by multiplying the market

value per share which is your price into your number of shares that is P into and

so equity market value is very important for a business owner especially when he

plans out to sell the business and sells his business equity market value gives a

good measure of what a seller of a business would receive after the debt

has been paid so let’s have a look at some formulas of

equity value formula so I mean I could evaluate Formula so Equity Value Formula 1 market value of equity I will start with market value of equity is going to be is equal to share

price into number of outstanding shares this is the first Formula know over here

the share price is the last traded price of the stock and the number of shares

outstanding should be at the latest figures available now there is another

formula for this equity value formula the second equity market value formula

is commonly used to find the fair equity value using DCF approach now there is a

thing called enterprise value and equity value so enterprise value basically I’ll

discuss over here enterprise value EV at the very beginning is basically

total assets and there are many other things that are involved and your it

involves your liability shareholders equity net debt and equity value so the

equity value in this particular scenario is going to be equity value is equal to

enterprise value minus the net debt which is your next formula equity value is

going to be your enterprise value EV – your net so we use the steps to

calculate the fair equity market value now the first step goes something like

this use a DCF approach a DCF using FCFF

that is of free cash flow to the form DCF will provide us the fair valuation

of the total firms enterprise value the next step is use the formula of the

enterprise value calculating using the DCF we have to calculate over here evey

so that is fair value t plus fair value plus preferred shares plus minority

interest you need to add any outstanding debt and then deduct any cash and bank

balance that will give you your enterprise value then third

we can finally calculate the fair equity value which is equal to enterprise value

that is a EV okay less any preferred shares less any minority interest less

any outstanding debt and you will add back any cash and any bank balance okay

so this is how it is it if we find the fair equity value the target price of

the stock is going to be fair equity value which we found over here divided

by the number of outstanding shares now you need to note that something that

market friends with the stock and the target price of the stock are two

different thing one is called market price another is called target price

they’re two different thing let’s assume that market price of let’s say Apple is

$110 per share using DCF you may get a target price of Apple close enough to

let’s say 135 this means that Apple is basically undervalued this means you

know it hasn’t reached the price of 135 so one should take a pie position in

this now let’s get to the next level equity

market interpretation equity market value is more useful to the seller of a

business than an investor let’s have a detailed look at this let’s say there is

a there is a guy called Mr. A again and he has a company which he wants to sell

so Mr. A is a seller now he is concerned about the valuation

of the company one day while searching for the buyers of his business mister A

got a proposal from mr. B and mr. B said he would buy Mr. A’s business at certain

valuation mr. B gave mr. a he mentioned that he has taken some loan for his

business which has not been fully paid yet and mr. B say that then he would be

the same as the valuation he has calculated however there is this mr. a

is saying that he will only receive the money after payment of the debt and

that’s market value of equity in the actual sense let’s understand this in

numbers let’s say mr. B say that he would pay 10 million for Mr. A’s

business before knowing that Mr.A has still to pay some debt and mr. A

mentioned that outstanding debt is mr. A mentioned that outstanding debt is let’s

say 2 million so mr. B agreed to pay mr. a 10 million for the business but that

would be inclusive of the outstanding that debt basically that means mr. A

would only get how much it’s going to be 10 minus 28 here the US 10 million

dollars is the enterprise value and 8 million is the equity market value so

let’s do a final basic example on this and we’ll read will conclude on this let

us do a basic value example of comparing two companies on the basic equity market value and finding the larger one let’s say there are two companies this company A it has Company B there are some shares they have and market price let’s say

there are 30,000 shares over here and 50,000 shares over here the market price

is let’s say over here 100 and over here 90 so in this case we have

given both the numbers of outstanding shares in the market price of the shares

let’s calculate the equity market value of the company a and Company B so the

equity market value of the company is going to be as simple as that

shares into the market price control R and

there we go we have our answer three 3,00,000 and 4,50,000 right so

basically what we we note that the market value of the equity of company a

is is basically more than Company B but let’s tweak few things and

calculate enterprise value and let’s see you know how it turns out to the

investor so based on this we can make some find the conclusion in the final

analysis it can be say that equity market value is the best method if an

owner of a business wants to know how much he would get by selling his

business from investor point of view enterprise value will fit the pin so

that’s it for this particular topic if you have learned and enjoyed watching

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