Question on "De facto" Standard definition for Enterprise Value (in relation to non-operating assets)
Hello,
Sorry for the very basic questions, just started out with valuation.
My first question, is there any standardizing body that gives a formal standard definition for Enterprise Value ?(regardless of the kind of entity, accounting, regulator, etc...FASB, IASB, SEC, etc..)
I'm having trouble figuring out if non-operating assets should be included in the Enterprise Value. I have seen it included in some valuation courses which give two definitions of EV, ("operating EV" and "adjusted EV"). I would understand that if EV is to measure exclusively the cash-flow generating potential of a company's core business, both excess cash and non-operating assets should be excluded.....
I remember when using Bloomberg (which gives you the definition of all the ratios and formulas it uses, along with the input variables), that non-operating assets where not explicitly excluded from the EV definition (while excess cash WAS excluded when calculating EV.
I also recall reading that when calculating ratios such as EV/EBITDA, as long as you're consistent in both numerator and denominator, comparing apples to apples, there's no problem, but if let's say a company invests a big amount of excess cash in real-estate which it rents out, even it it where to include the value of the buildings within EV and the rental income from them in EBITDA, you would be mixing business of two very different natures (which may have very different ROI's , distorting the resulting ratio....)
I'm also asking as if when pulling an EV/EBITDA comparison table for a group of peers directly from Bloomberg if that data should be tweaked or not if one of the peers has a big pool of non-operating assets....
Many thanks! Pedro
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