How to calculate the fair value of a company using the DCF model. Main financial multipliers and indicators Ev s coefficient shows

Basic determination of the value of the company (in English). Enterprise Value)simple enough. The value of the company is a figure that reflects the entire cost of the company that the investor must pay, to take full ownership of the company, including sharesand obligations.

Company value is a more accurate estimate of value than market capitalization because it includes a number of important factors, such as preferred shares, debt (including bank loans and corporate bonds), and cash reserves, which are excluded from the calculation.

How is the value of a company calculated?

Enterprise Value is calculated by adding

1) the market capitalization of the corporation

2) preferred shares

3) outstanding debt,

4) and then subtracted cash and their equivalents found on the balance sheet.

In other words,EV- the purchase price of each individual ordinary share of the company, preferred shares and outstanding debt. The reason cash is deducted is simple: once you acquire the entire company, the money is yours.

Let's take a look at each component individually, as well as the reasons why they are included in the calculation of the company's value.

Enterprise Value Components

1) Market capitalization: sometimes calledmarket cap, is calculated by taking into account the number of shares of common stock multiplied by the current price per share. For example, if ABC has issued 1 million. shares, and the current share price was$ 70 per share, the market capitalization of the company is$ 70 million. (1 million shares x$ 70 per share =$ 50 million).

2) Preferred shares: although it is equity capital, preferred stock may actually act as equity or debt, depending on the nature of the individual issue. preferred security, which is required to be repaid at a certain date in the future at a certain price, is, in fact, a debt. In other cases, preferred shares may be eligible for a fixed dividend plus a share of profits.. Preferred shares that can be exchanged for ordinary shares are known as convertible preferred shares. Despite this, the existence of preferred paper means, that their value should be taken into account inEnterprise Value.

3) Debt:as soon as you acquire the business in its entirety, you also pay off your debts. If you purchased all issued shares of a children's clothing chain for$ 30 million (market cap), but the business had$ 8 million debt, you actually spent$38 million because it came out of your pocket$ 30 million today, but now you are responsible for repaying a debt of $8 million of cash flow business - cash flow that could otherwise be directed to other things.

4) Cash and cash equivalents: after you have purchased a business, you have cash that is in the bank. After acquiring full ownership of the company, you can withdraw that cash and put it in your pocket without any collateral limit on any funding you used, replacing some of the money you spent on buying the business. In fact, this serves to reduce the purchase price. For this reason, the company's cash is deducted from when calculating EV.

Application of EV in financial analysis

An investor should have this mindset: when you buy shares, you are buying a percentage of the entire company. EV is the current market price if you buy the entire company. Should the company be valued differently?, if the investor buys only shares, not stocks and bonds? Not.

Enterprise Value (EV) measures the value of the assets that produce a company's product or service. In other words, it is like an economic value that includes equity (market capitalization) and debt capital (liabilities) of a corporation.

The fact thatEVincludes liabilities and cash, provides a neutral measure for calculating EV ratios. EV-based ratios can provide insight into fair value relative to other companies, although issuers may have significant differences in capital structure.

Calculation of coefficients based onEV

1.EV/EBIT

EV / EBIT (Enterprise Multiple) =EV/ Operating profit

(When comparing similar companies, a lower ratio would be more beneficial than a higher one.)

or calculate the inverse ratio to get the company's profitability.

Yield (EBIT / EV) = Earnings before interest and taxes / Enterprise Value

(When comparing similar companies, higher returns will mean better value than lower returns.)

The rate of return on earnings is half the formula popularized by Joel Greenblatt. The EV to operating profit ratio can be compared to the popular P/E ratio, but with two important differences. First, Greenblatt uses Enterprise Value instead of Market Cap. Second, it uses earnings before interest and taxes (EBIT) instead of net income. These two changes allow the analyst to compare companies with different capital structures., but already on an equal basis (unlikeP/E)eliminating the impact of debt and cash.

2.EV/EBITDA

EV / EBITDA = Company Value, divided by earnings before interest, taxes and depreciation

(When comparing similar companies, a lower ratio indicates that the issuer is undervalued)

3.EV/CFO

EV / CFO = Company Value / Operating Cash Flow

CFO = Operating income + Depreciation and amortization - Taxes - Interest payments +/- Change in working capital

(When comparing similar companies, a lower score is better than a higher score.)

IndicatorusingOperating cash flow (Cashflow from Operations) is a better ratio for valuing a company than net income because it is not affected by non-cash expenses (depreciation), or cash flows from financing or investing activities.

The EV/CFO ratio shows how many years it will take to recoup the money spent on acquiring a business, if you can collect all cash flows from operating activities in your pocket.

4.EV/FCF

EV / FCF = Company Value /

(When comparing similar companies, a lower ratio would be more beneficial than a higher one)

or rotate it to earn income...

5. EV / Revenue

EV / Sales ratio - the ratio between sales and Enterprise Value. In other words, the ratio shows the value of the company relative to the amount of revenue..

6. EV / Assets

For an investor looking for undervalued assets, the EV/Assets ratio is an additional metric with which to look for profitable deals.

conclusions

Company value, herEnterprise Value,is an key indicator for investors as it best reflects the overall value of the business and neutralizes the impact from the capital structure. EV can be used to calculate value ratios that provide important comparisons between issuers and allow selection of undervalued assets

, P/S and P/CF (you already know how to use them), and those that are for the extractive industry. And we will consider the following of them: 1. EV/DACF 2. EV/EBITDA (EBITDAX) 3. EV/BOE/D; 4.EV/2P. As you can see, all these multiples are based on the Enterprise Value (EV).

Company Value (EV)

Enterprise Value is an assessment of the company's value, taking into account all sources of its financing: debt obligations, preferred and ordinary shares, and the participation of external owners.

It is calculated based on the market capitalization of the company (Market Capitalization), taking into account its net debt (Net Debt) and the share of shares owned by minority shareholders (Minority Interest):

Enterprise Value = Market Capitalization - Net Debt + Minority Interest

Company Value = Market Capitalization - Net Debt + Minority Interest

I write in detail about how to calculate the Enterprise Value. Company market capitalization data can be found on financial websites such as Yahoo! Finance. Here in the balance sheet of the company (Balance Sheet) you can find out the amount of its obligations and the share of participation of external owners.

1. Company value to DACF (EV/DACF)

Due to the fact that most oil and gas companies are heavily leveraged, using the standard Price to Cash Flow (P/CF) ratio to compare them is ineffective. Because a high amount of debt makes companies' P/CF look better and thus distorts the valuation. To eliminate this effect, the EV/DACF indicator was developed. When calculating it, the cash flow from operations is used, adjusted for financial expenses: interest payments, income tax, preferred shares. This makes it more objective P / CF and allows you to compare companies with different amounts of debt. EV/DACF is calculated as:

EV/DACF = Enterprise Value/Debt Adjusted Cash Flow

EV/DACF = Company Value/Debt-adjusted cash flow from operations where

Debt Adjusted Cash Flow = Operating Cash Flow + Interest Expense + Current Income Taxes + Preferred Shares

Debt-adjusted cash flow from operations = Cash flow from operations + Interest paid + Current income taxes + Preferred shares

Data on the amount of cash flow from operations are taken from the Cash Flow Statement, financial expenses from the Income Statement, and the value of preferred shares from the Balance Sheet. You can find the company's reports on the already mentioned Yahoo! Finance.

! Important point. Many oil and gas companies provide EV/DACF in their presentations or reports. In such cases, it is useful to know how they calculate it. The fact is that this ratio is a non-GAAP metric and the procedure for its calculation is not approved by accounting standards. As a result, the methods of its assessment may vary from company to company. For example, in Hess Corporation EV / DACF they think so.

2. Company value to EBITDA (EV/EBITDA)

This indicator correlates the company's value with its earnings before taxes, interest and depreciation (EBITDA) and allows you to judge the performance of a business, regardless of its debt load, tax policy and depreciation method. Due to this, EV / EBITDA is suitable for comparing companies with each other, including those operating in different countries. It is calculated as:

EV/EBITDA =Enterprise Value/Earnings Before Interest, Taxes, Depreciation, Depletion and Amortization

EV/EBITDA = Company Value/Earnings before taxes, interest, depletion and depreciation

The EV/EBITDA ratio is applicable to industries where depreciation and interest payments are a significant cost item. Therefore, it is not a substitute for assessing oil and gas companies, which, due to their specifics, have a high amount of capital expenditures, resource depletion and debt burden. Exploration expenses can be found in the income statement under Exploration expenses, including dry holes.

2.1. Company value to EBITDAX (EV/EBITDAX)

A variation of the EV/EBITDA ratio is the EV/EBITDAX ratio , calculated as:

EV/EBITDAX =Enterprise Value/Earnings before Interest, Taxes, Depreciation, Depletion, Amortization and Exploration Expenses

EV/EBITDAX = Company Value/Earnings before taxes, interest, depletion, depreciation and exploration costs

This ratio is widely used in the US to eliminate the impact of differences in accounting for exploration spending. Companies can account for these costs in different ways - according to the method full cost(Full Cost Method) or successful efforts (Successful Efforts Method). At the same time, US-GAAP accounting standards allow only the method of successful efforts and not by chance.

The fact is that under the full cost method it is possible to capitalize costs (that is, they can be attributed to long-term assets), regardless of well productivity, while this cannot be done using the successful efforts method. According to it, only the costs of successfully operating wells can be capitalized, and the cost of non-productive wells must be expensed.

3. Company cost per production per day (EV/BOE/D)

This multiplier is also known as Price Per Flowing Barrel and is one of the significant indicators of the investment attractiveness of an oil and gas company. Its calculation is based on the value of the enterprise (Enterprise Value) and the indicator of daily production (Daily Production) in barrels of oil equivalent per day (BOE Per Day, BOE / D):

EV/BOE/D = Enterprise Value/Production BOE Per Day

EV/BOE/D = Company Value/Production per Day

EV/BOE/D is good for comparing a company to its competitors and allows you to quickly see if it is trading at a premium or a discount. However, when working with this coefficient, it should be remembered that it does not take into account production from undeveloped fields and the costs of their development. Therefore, for a reliable estimate, you should analyze the company's costs for the development of new resources and make sure that it is able to cover them (by checking cash reserves and cash flow).

4. Company value to proved and probable reserves (EV/2P)

The EV/2P ratio allows you to understand how much the company is provided with reserves to maintain the current level of production and generate income from its operating activities. This metric is good because it does not require any assumptions and is especially relevant when the company's cash flow is unstable and difficult to predict. EV/2P is calculated as:

EV/2P Ratio = Enterprise Value/Proven + Probable Reserves (abbr. 2P)

EV/2P Ratio = Enterprise Value/Proved + Probable Reserves

A variation of this indicator is the EV / 3P Ratio, in the calculation of which three types of reserves are involved (we talked about them at the very beginning): proven, probable and possible (Proven + Probable + Possible Reserves, abbr. 3P). But due to the fact that possible reserves have only a 10% probability of recovery, EV/2P is more commonly used to value oil and gas companies.

Ratio Analysis

How to analyze the values ​​of these coefficients? Together and in comparison. What I mean? The fact that each of the indicators must be considered through the prism of others and correlated with industry values. Because everything is known in comparison, and only by comparing the results of the company in the industry and with competitors, you can understand how expensive or cheap it is.

This is true for all cost ratios. So, if the company's shares are higher than the industry average, then this may indicate an overvaluation of its shares or that the market expects their further growth. Similarly, if the values ​​of the coefficients are below the industry average, then this may indicate that the securities are undervalued, or that the market doubts the future profits of the company.

As you can see, the analysis of price coefficients is the simplest and most affordable way to conduct an assessment. However, it cannot be used as the main one. First of all, because when you buy shares in a company, you are paying for tomorrow's profit, not yesterday's. So it is important for you to know its potential. Does any company have it? You can understand by studying its reporting and business. You can easily accomplish this task by reading earlier blog entries or by stopping by my workshops (come while there is space).

Final Thoughts

Most large oil and gas companies are vertically integrated holdings and combine upstream, midstream and downstream operations in their activities (we talked about them in the first part in the Industry terms, concepts and abbreviations section), that is, they carry out a full cycle of operations from exploration to the sale of raw materials to the final buyer .

Efficiency in the oil and gas business is determined by whether the company is provided with an adequate level of reserves, and whether it replenishes its reserves in the required volume. Therefore, when analyzing oil and gas companies, primary attention should be paid to production and reserves indicators, using such industry metrics for their assessment as: 1. P/R Ratio. 2. Reserve Life Index. 3. RRR Ratio.

The need for constant replenishment of reserves requires significant capital expenditures for the exploration and development of new deposits. To finance these costs, most oil and gas companies attract borrowed capital and operate at a high level of leverage. In the context of falling prices for raw materials, this creates pressure on the business and carries the risk of bankruptcy.

To analyze the risk of bankruptcy when studying a company, it is important to assess its ability to generate a steady cash flow and to correlate its financial strength with the debt burden. To do this, it is necessary to conduct an express analysis of the balance sheet and check the creditworthiness of the company, for example, using the Altman model.

The mining business, to a much greater extent than the processing business, depends on the dynamics of prices for raw materials. This should be taken into account when analyzing the company's revenue structure and assessing investment risks, the key of which is the unpredictability of oil prices.

The following ratios are best suited for analyzing the investment attractiveness of oil and gas companies: 1. EV/DACF 2. EV/EBITDA (EBITDAX) 3. EV/BOE/D; 4.EV/2P. Along with universal price multipliers (Р/Е, Р/B, Р/S and P/CF), they provide an objective view of the company's valuation by the market.

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And how to use them

Can an investment in M-video be about the same in terms of profitability as in a car wash?

Roman Koblenz

Stocks of undervalued companies bring more predictable and stable income, they are also less subject to the risk of drawdown against the backdrop of a crisis or extraordinary events.

Now let's look at the examples of the main multipliers.

More than zero, less is better

P/E - price to earnings

P / E - the ratio of the company's price to profit. More specifically, the market price of a share to net earnings per share. Or the market capitalization of the entire company to annual net income.

The ratio of price to profit is the main indicator. It reflects how many years the company pays for itself, and allows you to compare companies from different industries. If this multiplier is between 0 and 5, then the company is undervalued. If more - probably overrated. A multiplier less than 0 indicates that the company has made a loss.

But you need to understand that simply comparing two fundamentally different companies by one P / E indicator is reckless. One early-stage company may have large capital expenditures that eat into large profits. And in the other, the profit is much lower, but also the capital expenditures are lower, because of this, its P / E will look better.

P/E is a good indicator, but not the only one.

P/E of Rosneft and Gazprom

In this and other tables, the multipliers are calculated based on the results of 2016 according to financemarker.ru

Market capitalization

Rosneft

4200 billion rubles

Gazprom

3600 billion rubles

Profit per year

Rosneft

201 billion rubles

Gazprom

411 billion rubles

P/E multiplier

Rosneft

Gazprom

From zero to one - good

P/S - price to sales

The P/S multiple is the ratio of the market price of a share to the revenue per share. It is used to compare companies in the same industry, where margins will be at the same level. It is best suited to industries where revenue is believed to consistently generate corresponding amounts of profit or cash flow, such as trading.

A coefficient value less than 2 is considered normal. P/S less than 1 indicates undervaluation. The advantage of P/S is that it can be calculated for all companies, since its value can only be positive, because revenue can only be positive.

P/S for NKHP and M-video

Capitalization and revenue are indicated in billion rubles

Market capitalization

15 billion rubles

"M Video"

69 billion rubles

4.7 billion rubles

"M Video"

183 billion rubles

Multiplier P/S

"M Video"

Less than one is good

P/BV - price to book value

The P/BV multiplier is the ratio of the market price of a share to the value of assets per share. It is convenient to use it to compare banks, because the assets and liabilities of banks almost always correspond to their market value. The P/BV does not indicate the company's ability to make a profit, but it gives an indication of whether the shareholder is overpaying for what is left of the company in the event of its instant bankruptcy.

P/BV less than one is good. For 1 ruble of market capitalization, there is more than one ruble of the real value of the company. If the company goes bankrupt and shareholders are allowed to return their shares, then they will have something to return.

P/BV greater than one is bad. For every ruble of market capitalization, there is less than one ruble of the real value of the company. If the company goes bankrupt and the shareholders are allowed to return the shares, then there will not be enough for everyone.

P/BV of Otkritie and St. Petersburg banks

Capitalization and assets are indicated in billion rubles

Market capitalization

"Opening"

315 billion rubles

"Saint Petersburg"

29 billion rubles

Company's own assets

"Opening"

155 billion rubles

"Saint Petersburg"

60 billion rubles

Multiplier P/BV

"Opening"

"Saint Petersburg"

EV - enterprise value

The EV multiple is the fair value of the company. It is defined as follows: EV = Market capitalization + Total debt - Company's available cash.

Look at two companies and tell me which one will cost you more to buy?

EV RusHydro and Inter Rao

Capitalization, debt and available money are indicated in billion rubles

RusHydro

Capitalization

358 billion rubles

332 billion rubles

Available money

67 billion rubles

623 billion rubles

"Inter Rao"

Capitalization

396 billion rubles

152 billion rubles

Available money

96 billion rubles

452 billion rubles

The price of RusHydro on the stock market is 358 billion rubles, the price of Inter RAO is 396 billion. It turns out that Inter RAO seems to be more expensive for you by as much as 38 billion rubles. But in fact, this is not the case, and EV explains this to us:

• After the purchase of RusHydro you will receive debts for another 332 billion rubles, and there will be 67 billion in cash - it turns out that the company will actually cost you 623 billion rubles.
• And if you buy Inter Rao for 396 billion rubles, then you will also receive its cash in the amount of 96 billion. The debt will be 152 billion, which will give a total real value of 452 billion rubles. It turns out that in fact RusHydro is more expensive, and by as much as 171 billion rubles.

EV is a very important metric on its own, but its main benefit is when compared to the next metric.

EBITDA

The EBITDA multiple is the company's earnings before interest, taxes and depreciation.

We need EBITDA to understand how much profit the company's business brings directly. Can the company make money?

To put it even more simply, EBITDA is how much a company would earn under ideal conditions, if it already had all the factories, the machines did not wear out, and the state introduced a zero tax rate for it.

A separate benefit of the EBITDA multiplier is that it allows you to conveniently compare companies in the same industry, but from different countries. After all, if in one country the tax is 13%, and in another 50%, then, having the same profit from business, we will receive different net profit. EBITDA will be the same.

EBITDA of RusHydro and Inter RAO

Profit, depreciation and expenses are indicated in billion rubles

RusHydro

Profit before taxes

55 billion rubles

Depreciation

24 billion rubles

Interest expense

(−0.902) billion rubles

78.1 billion rubles

"Inter Rao"

Profit before taxes

68.5 billion rubles

Depreciation

23 billion rubles

Interest expense

14 billion rubles

105.5 billion rubles

More than zero, less is better

EV/EBITDA

The EV/EBITDA multiple is the market estimate of a unit of earnings.

This indicator compares companies that operate in different systems accounting and taxation. It is similar to the P / E you already know - the price-to-earnings ratio. But only now, instead of market capitalization, we see the real market price of the company. And instead of net profit - a more reliable value of EBITDA.

Remember, we said that in terms of P / E it is incorrect to compare companies from different industries and in different life phases? The problem was that we were dividing market capitalization by earnings after all payments, taxes, and capital expenditures. And now we are looking at cleaner and more reliable indicators - by which companies can already be compared with more confidence.

EV/EBITDA of RusHydro and Inter RAO

All indicators, except multipliers, are indicated in billion rubles

Market capitalization

RusHydro

358 billion rubles

"Inter Rao"

396 billion rubles

Total debt

RusHydro

332 billion rubles

"Inter Rao"

152 billion rubles

Company cash

RusHydro

67 billion rubles

"Inter Rao"

96 billion rubles

RusHydro

"Inter Rao"

Profit before taxes

RusHydro

55 billion rubles

"Inter Rao"

68.5 billion rubles

Net profit

RusHydro

39.8 billion rubles

"Inter Rao"

61.3 billion rubles

Depreciation

RusHydro

24 billion rubles

"Inter Rao"

23 billion rubles

Interest paid

RusHydro

"Inter Rao"

RusHydro

"Inter Rao"

RusHydro

"Inter Rao"

RusHydro

"Inter Rao"

The calculated EV/EBITDA multiple shows us that both companies' realities are better than a quick P/E calculation would suggest. The companies have a very powerful infrastructure, on which depreciation is written off 23-24 billion rubles a year. A significant part of Inter Rao's profits also goes to pay off debt. And this is an additional 14 billion in profit that the company can add after paying off the debt. All this is taken into account in EV /EBITDA and is not taken into account in P/E.

The principle of estimating EV /EBITDA is the same as P/E - the lower the better, and a negative value, as a rule, indicates losses.

If we limited ourselves to comparing P / E , then both companies would not seem attractive to us. However, a more accurate and detailed EV /EBITDA showed that Inter RAO is not only a clear favorite in this comparison, but also that the shares of this company, in principle, good idea for purchase.

Less is better

Debt/EBITDA

The Debt/EBITDA multiplier reflects the number of years a company needs to repay all debts with its profit. The fewer years the better.

Investors most often look at EV/EBITDA and Debt/EBITDA multiples first. Often they are combined into one bubble chart, on which EV / EBITDA is on the X axis, Debt / EBITDA is on the Y axis, and the size of the circle is determined by the company's capitalization. Further, in this way, all companies in the same industry are placed on the graph:

The most undervalued companies in this visualization will be on the bottom left, near the origin. It remains for a reasonable investor to choose a company on the bottom left, study it and invest.

growth is good

EPS - earnings per share

The EPS multiple is the net income per ordinary share. It is measured as the ratio of earnings to the number of shares. For analysis, EPS growth is more often used, that is, the percentage change in the past EPS indicator to the current one. Very often, a sharp rise or fall in profits is a harbinger of a corresponding change in the share price.

For example, at the end of 2016, Detsky Mir showed a 291% increase in profits. After leaving financial report The share price has risen by 35% and is now in an uptrend.

At the end of 2016, the Dixy retailer showed a drop in profits by 573%. After the release of the financial report, the share price fell by 35% and is now in a downtrend.

At the same time, you should not rely heavily on the change in EPS. It is better to use this multiplier as an additional selection criterion when screening has already been done for the main multipliers discussed above.

More is better

ROE - return on common equity

The ROE multiplier is the return on equity as a percentage per annum, that is, profitability. It can be used to judge the effectiveness of the company.

For example, let's take two car washes: the first is designed for 30 cars, and the second for 5. The first has much more own assets: a larger land area, a larger car wash building itself, more equipment. But if at the same time both car washes give the same profit, we will see a skew in the ROE indicator: for a small car wash it will be much higher. ROE will tell us that a small car wash is more efficient and that the equipment (equity) it buys pays off much faster. So we, as investors, will choose a car wash for 5 cars.

And if we compare the ratio of Yandex's profit to revenue and, for example, the profit of the Magnit network to revenue? The profitability of a business is completely different, so such a comparison is not always correct.

A smart investment strategy is to find the best multiplier companies in each industry and build a diversified investment portfolio.

Another feature of the use of multipliers relates to the financial statements of banks. You will not find revenue in it, and the debts of banks cannot be considered the way we consider them for ordinary companies. That is why we cannot use a number of multipliers to compare banks, namely: P/S , EV/S , EV /EBITDA , debt/EBITDA . Instead, you can use the most versatile P / E and P / BV.

Remember

1. Multipliers reflect the relationship between a company's market capitalization and the financial performance of the business. This helps to compare different companies on a single scale.
2. Undervalued companies are at lower risk.
3. Companies should be analyzed on the basis of multipliers by the totality of all indicators, and not by one.
4. Multipliers are best used to compare companies in the same industry, thus adding to your portfolio the best companies from each sector.

In fundamental analysis, there are a lot of multipliers that allow you to compare companies with each other, which is necessary to identify the most promising ones for investment.

Multipliers are calculated based on various indicators. For example, there is , which has less volatility (compared to net income) and is able to better reflect the cash generated by the company. Based on this indicator, the EV / EBITDA multiplier (Enterprise value / Earnings before Interest, Taxes, Depreciation and Amortization) is calculated - the ratio of the company's value to its earnings before interest, taxes and depreciation and depreciation). EV/EBITDA belongs to the group of income multipliers that correlate the income received by the company to other indicators, thereby characterizing its level.

In this article, we will explain in simple terms what EV / EBITDA is and how this is calculated.

EV/EBITDA calculation

It should be noted that EV and EBITDA are not included in the companies' financial statements under both IFRS and RAS, and therefore are additionally calculated parameters. Thus, the EV indicator is calculated as the sum of capitalization (the product of the market value of shares by their total number) with the company's total debt (the sum of short-term and long-term debts), minus such an indicator of the balance sheet as cash and cash equivalents. EV shows how much you need to pay in total for a company if it is bought at market value. The fact is that when buying a company and paying for it the market value of all its shares (capitalization), the investor acquires, as a mandatory burden, its debt, which he must repay, but he can make part of this repayment and at the expense of the company's existing cash funds and their equivalents. Actually, the indicator of the total debt of the company in the amount of cash and cash equivalents is called the net debt of the company (Net Debt). It demonstrates that debt can be partially “cleaned up” with cash already available. And the EV indicator, in turn, can be defined as the sum of a company's net debt and its capitalization.

Let us give an example of calculating the EV of Rosneft for 2016. It is convenient to view the capitalization of the company for the specified period on the website of the Moscow Exchange in the "Listing" section, in the "Quantitative indicators" subsection, by selecting the time period of interest - Q4 2016 (http://moex .com/a3882). The presented table also indicates the number of shares - 10,598,177,817 units, and the price per share - 400.1 rubles. for the analyzed period, and capitalization - 4,240,330,944,581.70 rubles.

Rice. 1. Capitalization of Rosneft in 2016

Next, you should find the company's net debt, which can be taken from the balance sheet by adding up the items "Total short-term liabilities" (debt that should be repaid in the next 12 months) from the "Liability" column - 2,773 billion rubles. and “Total long-term liabilities” (debts that must be repaid within more than 12 months) - 4,531 billion rubles. Thus, we will receive 7,304 billion rubles. Then, the item “Cash and cash equivalents” should be subtracted from the obtained value - 790 billion rubles, thereby obtaining 6,514 billion rubles. And the final value of EV will be the capitalization amount of 4,240,330,944,581.70 rubles. and net debt of 6,514 billion rubles, that is, 10,754,330,944,581.7 rubles. This amount must be paid to the investor when realizing the opportunity to buy all the company's shares at the market price, while paying off the "mandatory inherited debt burden."

Rice. 2. Balance sheet of Rosneft for 2016

But to calculate the EV/EBITDA multiplier, you will need to calculate another indicator that is not included in the financial statements - EDITDA. It can be calculated as the sum of "Profit before tax" (from the income statement for the same period), "Depreciation and amortization" (from the cash flow statement) and "Interest paid" (also from the cash flow statement), minus "Interest received" (similarly - from the cash flow statement, from the section "Financial activities").

Based on the described method, we have:

"Profit before tax" - 317 billion rubles, plus the value of "Depreciation, depletion and amortization" - 482 billion rubles, plus the value of "Interest paid" - 143 billion rubles, and minus the value of "Interest received" - 58 billion rubles . Thus, we get that EBITDA is equal to 884 billion rubles. And now, having the initial EV data - 10,754,330,944,581.7 rubles, we divide this figure by EBITDA - 884 billion rubles, thereby obtaining the multiplier value - 12.15.

Rice. 4. Cash flow statement of Rosneft for 2016

Rice. 5. Cash flow statement of Rosneft for 2016 section Financial activities

EV/EBITDA multiplier logic

The EV/EBITDA multiple consists of less volatile measures than just net income and better characterizes the amount that an investor will spend to acquire a company along with its debts. Thus, the EV / EBITDA ratio shows how long the cash generated by the company, and not spent on depreciation, interest and taxes, will be able to recoup the total cost of acquiring the company. In the case of Rosneft, this figure was just over 12 years. In its meaning, the EV / EBITDA ratio is somewhat similar to the multiplier (the ratio of profit and capitalization), but consists of less volatile components. Naturally, EV/EBITDA is considered only in dynamics and in conjunction with the multipliers of other groups - profitability, financial stability and solvency.

Conclusion

The EV/EBITDA multiplier shows the payback period of investments, somewhat freeing the result from the volatile component. Therefore, EV/EBITDA analysis is essential when making investment decisions.

Before making investment decisions based on the analysis of financial ratios of issuers, we recommend that you make all the necessary calculations yourself.

It currently provides the opportunity fundamental analysis financial market for the following financial indicators issuers: P/E, P/S, p/salesmargin, ev/ebitda, P/B, eps, ev/s, roe. Calculations are made in real time (with a delay of 15 minutes due to the requirements of the MICEX exchange), based on data from issuers' reporting under IFRS or US GAAP.

1) P/E - Price/Earning Ratio

The price/earnings ratio is calculated using the following formula:

where: P - share price, EPS - earnings per share

Application: P/E Ratio expresses the market value of a unit of the company's profit, which allows comparative assessment investment attractiveness of companies. A lower value of the coefficient signals that the profit of this company is valued on the market cheaper than the profit of the company for which the coefficient is higher. At the same time, it should be taken into account that comparing the coefficients for companies belonging to different markets or different market segments does not make much sense - profit could be calculated based on different methods (in different countries), different growth expectations could be included in the share price (on different market segments).

Note: In our table, negative P/E values ​​are replaced by a dash (“--“) in order not to mislead users. Negative values ​​of the price/earnings ratio are associated with the issuer's net losses for the period.

2) P/S - Price/sales ratio (price/revenue)

The price/sales ratio (price/revenue) is calculated using the following formula:

Application: Small values ​​of the coefficient indicate that the company under consideration is undervalued, large values ​​indicate that the company is overvalued.

Note: In our calculations here, if a company has preferred shares, then the capitalization of the company includes the capitalization of preferred shares.

3) p/sales margin - price/operating profit ratio (price/sales profit), is calculated by the following formula:

Usage: p/sales margin evaluates a company by the profitability of its core business. The lower the value of this coefficient, the more profitable is its main activity. Negative values ​​indicate losses in the company's core business.

Note: In our calculations here, if a company has preferred shares, then the capitalization of the company includes the capitalization of preferred shares.

4) ev / ebitda - business value / profit before tax, interest on loans and amortization (EBITDA (abbreviated from the English. Earnings before Interest, Taxes, Depreciation and Amortization) - an analytical indicator equal to the amount of profit before deducting interest expenses, payments taxes and depreciation). EV/EBITDA (Enterprise Value/EBITDA) is an indicator that compares the value of an enterprise with its EBITDA.

Enterprise Value (EV)= Value of all common shares of the enterprise (calculated at market value) + value of debt obligations (calculated at market value) + value of minority interest (calculated at market value) + value of all preferred shares of the enterprise (calculated at market value) - cash and cash equivalents

In our case, the value of the business is calculated as follows: ev = company capitalization + net debt (total debt minus cash and cash equivalents) + minority interest

Application: Often used to estimate how many years an investment will pay off. If ev/ebitda is negative, then the company generates an EBITDA loss.

5) P/B (also referred to as p/bv) – The ratio of capitalization to the book value of assets (P/B ratio, Price-to-book ratio)

The ratio of capitalization to the book value of assets is calculated here using the following formula:

Usage: A low P/B level can serve as a calming signal for an investor. The higher the P/B ratio, the more it is overvalued by the market in relation to its book value. In the last few years, the S&P 500 P/B has been around 3.1. It should also be noted that the significance of the P/B multiple depends on the industry in which the company operates. The book value of assets is important in the valuation of financial institutions and is of little importance to software manufacturers.

6) eps - Earnings per share

Earnings per share is determined by the formula:

where
IN - undistributed profit of the reporting period,
DP - dividends on preferred shares accrued for the reporting period,
SA is the weighted average number of ordinary shares outstanding during the reporting period.

Application: If the calculated EPS value less than zero, it makes sense to talk about loss per share.

Note: In our calculations, the EPS value is taken directly from the respective issuer's report for the period.

7) ev/s – business value/revenue (Enterprise Value/Revenue)

Here, book value is compared to revenue. An analogue of the P/S multiplier.

8) roe - Profitability ratio equity(Return On Equity)- the ratio of the company's net profit to the average annual share capital.

The profitability ratio is calculated by the formula:

Application: Investors use ROE as a measure of how effectively a company is using their money. The higher the ROE value, the more efficiently the company uses its money.

Note: We calculate the average annual share capital as the arithmetic mean of the capital at the beginning of the year (we take the capital value from the reporting at the end of the previous year) and capital at the end of the year.