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From enterprise value to a share price

Subtract what lenders own, add what the business does not need, divide.

Discounting FCFF at WACC gives the value of the operating business to all capital providers. To get to what a share is worth, remove the claims that rank ahead of shareholders and add assets the operations do not use.

EV=∑t=1nFCFFt(1+WACC)t+TVn(1+WACC)n\text{EV} = \sum_{t=1}^{n}\frac{\text{FCFF}_t}{(1+\text{WACC})^t} + \frac{\text{TV}_n}{(1+\text{WACC})^n}
Equity=EV−Debt−Minority interest+Cash & investments\text{Equity} = \text{EV} - \text{Debt} - \text{Minority interest} + \text{Cash \& investments}
Value per share=EquityDiluted shares\text{Value per share} = \frac{\text{Equity}}{\text{Diluted shares}}
  • Debt includes short-term, long-term and operating-lease liabilities. Since 2019 leases sit on the balance sheet and behave like debt.
  • Minority interest is the slice of consolidated subsidiaries owned by others. It is in EV but not yours.
  • Cash and investments are added because the operating cash flows did not need them. Excess cash is a separate asset shareholders own.
  • Diluted shares count options and convertibles that will become shares, so the value is not overstated per share.
In the appThe bridge table beside the result lists each step from enterprise value to equity value and the share count used.

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