Enterprise Value = Market Value + Total Debt + Preferred Capital + Minority Interest − Excess Cash
If Enterprise Value is negative
If the Enterprise Value of a company is negative, a value of 1 is used for calculation purposes. For example if not the EBIT / EV ratio would be a negative number.
We did this after the 2008 financial crisis. We were screening for deep value stocks at the time, and setting EV to 1 instead of NULL meant that securities with negative enterprise value would show up with extremely high ratios rather than disappeared from the screen.
The downside is that for companies with negative enterprise values you may for example see extremely high Free Cash Flow Yield (FCF/EV) or Earnings Yield (EBIT/EV) percentages – you are dividing with one).
The upside is that it makes it immediately obvious to you that you are looking at a negative Enterprise Value company.
This is exactly what you want as a deep value investor.
Excess cash is NOT just cash
Excess Cash is NOT equal to cash, please see the separate definition of Excess Cash
Total debt is short-term plus long-term debt, including lease liabilities.
We subtract only excess cash, not all cash. Most other data sources subtract all of a company's cash. So our Enterprise Value is usually higher than the figure you see elsewhere. That makes our earnings yield, EBITDA yield and FCF (free cash flow) yield more conservative.
Financial statement currency is used
EV is calculated in the currency of the company's financial statements.
If its share price is quoted in a different currency the market value of the company is translated into the currency of its financial statements.
How you can use the ratio
Available as a screening ratio: No
Available as an output column ratio: Yes - To select it click the Add/remove columns icon, In the Valuation tab tick the box next to Enterprise Value
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