Enterprise Value Ratios (EV)

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Definition

Enterprise Value/Financial Metrics are often used by analysts to quickly look at a company's valuation multiples. All things being equal, the lower this ratio is, the better.

EV / Assets:
The enterprise value of a company divided by its total assets. It should be the default EV multiple when the business is asset driven (when ROA is relatively constant and assets show future cash flows the best).

A high (low) EV/Assets mean the company is potentially overvalued (undervalued).

EV / CFO:
EV/CFO answers the question, "What is a company being valued per each dollar of CFO?", which really answers, "How long will it take the company to pay for itself using all of the operating cash flow?"

EV/CFO tells the amount of time the company would need to pay for itself. For example if the company's ratio is 10, that would mean the company would take 10 years to buy all its outstanding stock and pay all debts using the operating cash flow.

EV / Earnings:
EV / Earnings answers the question, “What is a company being valued per each dollar of earnings?” A high (low) EV/Earnings mean the company is potentially overvalued (undervalued). EV/Earnings, however, is not a good measurement.

EV / EBIT:
EV/EBIT answers the question "What is a company being valued per each dollar of EBIT?" A high (low) EV/EBIT mean the company is potentially overvalued (undervalued).

EV / Free Cash Flow:
EV/FCF answers the question "What is a company being valued per each dollar of FCF?" A high (low) EV/FCF mean the company is potentially overvalued (undervalued).

EV / Revenues:
EV/Revenues answers the question "What is a company being valued per each dollar of revenues?" A high (low) EV/Revenues mean the company is potentially overvalued (undervalued).

Other similar metrics include :
EV/EBITDA : How much is each dollar of EBITDA worth to investors?

For more information on evaluating valuation multiples similar to this, please see our original white paper research : Making Sense Of Valuation Multiples.

Formula

EV / Assets = enterprise values / assets
(See enterprise value link below for details about how it is calculated)

EV / CFO = Enterprise Value / Cash Flow from Operations

EV / Earnings = Enterprise Value / Net Income

EV / EBIT = Enterprise Value / Earnings Before Interest and Taxes

EV / Free Cash Flow = Enterprise Value / Free Cash Flow (TTM)

EV / Revenues = Enterprise Value / Revenues

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