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  • The Daily Technical #137: How do you calculate the fixed charge coverage ratio (FCCR) and what does it mean?

The Daily Technical #137: How do you calculate the fixed charge coverage ratio (FCCR) and what does it mean?

How to answer "How do you calculate equity value from enterprise value?"

March 20, 2025

Good morning. Welcome to the 137th edition of The Daily Technical.

Now, you’re here for one reason, so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
How do you calculate equity value from enterprise value?

To calculate equity value from enterprise value, subtract net debt from enterprise value.

Net debt includes gross debt and debt-like claims, such as preferred stock minus cash and non-operating assets.

Adjust further by subtracting preferred stock and minority interest.

Formula: Equity Value = Enterprise Value - Net Debt - Preferred Stock - Minority Interest.

This straightforward subtraction ensures that you're left with the value attributable to the shareholders.

Common Mistakes

  1. Forgetting to account for components like minority interest and preferred stock in the calculation. Always include all relevant factors: subtract net debt, preferred stock, and minority interest to align with how these impact equity value.

  2. Confusing gross debt with net debt. Remember, net debt is gross debt minus cash and non-operating assets. Always double-check each component to ensure accuracy.

TL;DR

  • Subtract net debt (gross debt + preferred stock - cash/non-operating assets) from enterprise value.

  • Deduct preferred stock and minority interest from remaining value.

  • Formula: Equity Value = Enterprise Value - Net Debt - Preferred Stock - Minority Interest.

  • Result reflects shareholder value.

TODAY’S QUESTION
How do you calculate the fixed charge coverage ratio (FCCR) and what does it mean?

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