Enterprise Value pre-built factors 'EV' & 'EVPS' are now available

Under SHARE RELATED you now have

EV: Enterprise Value is an estimated measure of the total value of a corporation.
EVPS: Enterprise Value per share is Enterprise Value divided by the number of outstanding shares

Until now most people were using CUSTOM FORMULA-> $EV which was defined as MktCap+ DbtTotQ-( CashPSQ* ShsOutMR)

The Pre-build EV is more complete. It is defined as:

capitalization + totdebt + value of pfd equity + minority interest - cash & equiv

The main difference is the inclusion of preferred & cash equivalents

Thanks, Marco.

Will the Greenblatt ranking system also be updated (i.e., replace the $EV in the formula with EV)?

Jim

Yes, but I think we have to revise the ratio. We might be using the wrong item for minority interest. I’ll report back. Thanks

Thanks marco,

I’ll try the new factor and compare it to my own.

It is theoretically possible for EV to be negative or zero. What would this new factor do if that were the case?

Al

EV as of tomorrow (december 11) will use minority interest will include both redeemable and non redeemable. Currently only redeemable is included. Most notable example is VZ with a non-redeemable interest of $54B.

Marco,

Could you please add a new function for non-redeemable non-controlling interest as well? Currently I can only find redeemable non-controlling interest in the help:

NonControlInt
Function
BALANCE SHEET
NonControlInt(offset,type[,NAHandling]): Redeemable Non-Controlling Interest

I would also appreciate if you could share the full function that will replicate your pre-build EV as that will allow me to move from my custom build formula to your pre-build formula. This will hopefully save some valuable processing time as well.

Thank you!

I did some investigation re the negative enterprise value question. A stock for which the EV would be negative (i.e. cash equivalents exceeds total debt and market cap) is Bank of New York Mellon (BK).

I used the screener to get the EV for BK and it came back NA. That seems like a reasonable thing to do but am I right in concluding that EV will never be negative?

FWIW I used total liabilities instead of total debt for a while to get around this problem. For BK, the deposits would make the EV positive.

Thanks, Al

Edit:

Also, like Hedgehog, I would be interested to see an equivalent custom formula for EV. Sometimes I like to mess with it. For example, a bank needs cash reserves so one might not want to net out 100% of the cash.

Another example, if one believes cash will typically be used to acquire at a premium to fair value, one might not want to net out the full 100%.

Marco (or anyone else who can help),

Could you please provide the actual formula (that I can implement) used to compute EV. I don’t see it provided in the Factor/Function Reference, in this thread, or in a more recent thread concerning EV.

I naively tried using the following:

MktCap+ DbtTotQ-( CashPSQ* ShsOutMR) + PfdEquity(0,QTR) + NonControlInt(0,QTR)

Unfortunately, although perhaps not surprisingly, the above formula yields different values than EV for many stocks (although the differences are typically small).

Thanks.

mdr

Try this

MktCap+ DbtTotQ-CashEquiv(0,QTR) + PfdEquity(0,QTR) + NonControlInt(0,QTR)

The CashPSQ* ShsOutMR introduces the differences because the pre-built CashPSQ ratio uses diluted shares (the shares found in the income statement), but ShsOutMR uses the shares from the balance sheet. By using CashEquiv() you avoid the need for #shares.

Marco,

Thank you very much for the lightning quick response and valuable info.

I’ve confirmed that the revised formula and EV yield identical values.

mdr

I tried using this factor to find negative Enterprise Value stocks, but it didn’t work for me: I created a screen with QuickRank: EV, lower is better. The top-ranked stock as of today (CHMI) showed an EV of zero when in fact its EV is $140m according to Cherry Hill Mortgage Investment Corporation (CHMI) Valuation Measures & Financial Statistics. Also, the screen seems to be missing several negative EV stocks trading today, e.g. TSPT, NURO, GIGM, etc.

Is the built-in EV formula set to return NA when EV<0? If so, is there any way around that limitation?

Yes, we have set the formula to return NA if enterprise Value is negative.

We do that because a negative enterprise value has no meaning. Recall that EV is a proxy for what a company may be worth in a takeover (typically subject to a premium of some sort, but EV is a starting point). If we publish a negative enterprise value, we’d be saying, in essence, that an acquirer could ask shareholders to pay him to take the company off their hands.

That said, there are companies for which the number that have to go into an EV formula just so happen to produce a sum that is below zero. That’s OK; we just have to dismiss those companies as situations where the EV framework can’t be applied. (Bear in mind that EV is not a classic accounting or analysis ratio; it is a back-of-the-envelope creation by certain segments of the investment community (those interested in asset-based valuations, M&A, etc.). So we should not be surprised to see that the ratio does not have universal applicability.

I am trying to backtest companies with a negative enterprise value. I am writting as a buy rule EV <0. I think I am doing something wrong because in the simulation any stock is bought. Can somebody help me?
thanks

Use a custom formula instead of P123’s formula because that excludes negative EV stocks. Try price*sharesfdq + dbttotq - isna(cashequivq,0) + isna(noncontrolintq,0) + isna(pfdequityq,0).

thanks.
I will try this
best regards