EV Components
▪ EV = market cap + debt + preferred stock + minority interest – cash
▪ How do you find market cap?
▪ Current share price times fully diluted shares outstanding
▪ Use fully diluted shares out because the market values the company based on diluted
shares
▪ How do you find fully diluted shares outstanding?
▪ “Fully diluted” includes basic shares and the dilutive effects of warrants and
options (don’t use it with convertibles b/c company doesn’t receive any cash)
▪ Use the Treasury Stock method
1. Find current options outstanding and weighted average strike price ( from 10-K)
2. For each class/group of options, subtract exercise price from current share
price, divide by share price, and multiply by options outstanding
3. If the exercise price is below the current price, add the number you get from #2
to basic shares to get diluted shares
▪ Why use the Treasury Stock method?
▪ When options are exercised, the company has to issue the set amount of
shares BUT the company will receive the exercise price from the option; will use
that to buy back some shares
▪ Company doesn’t want their stock to be too diluted