The Daily Technical #58: What is CAGR and how do you calculate it?

Good morning. Welcome to the 58th edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
What is enterprise value and how do you calculate it?

Conceptually, enterprise value ("EV") represents the value of the operations of a company to all stakeholders including common shareholders, preferred shareholders, and debt lenders.

Thus, enterprise value is considered capital structure neutral, unlike equity value, which is affected by financing decisions.

Enterprise value is calculated by taking the company's equity value and adding net debt, preferred stock, and minority interest.

Enterprise Value = Equity Value + Net Debt + Preferred Stock + Minority Interest

Common Mistakes

1. Conflating Equity Value with Enterprise Value. Avoid this by remembering that EV encompasses more, including net debt, preferred stocks, and minority interests.

2. Ignoring Capital Structure Neutrality. Always stress that EV remains consistent regardless of financing strategies.

3. Miscalculating Net Debt. Double-check this calculation to ensure accuracy.

TL;DR

• EV captures the complete operational value of a firm, regardless of its capital structure

• Enterprise Value = Equity Value + Net Debt + Preferred Stock + Minority Interest

TODAY’S QUESTION
What is CAGR and how do you calculate it?

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THAT’S A WRAP
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