which is used? why? im assuming book value of debt.
if a company buys another wont it really just pay for the equity + some premium and assume the debt without paying for it?>
enterprise value is just a theoretical value used for ratios/comps right?
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Use market value of debt, if you can.
EV is generally used for ratio/comps, but theoretically it should give you the valuation of the firm (payouts of the firm to both debt and equity holders)
most of time book and market value of debt will be equal unless the company is going through some restructuring for example.
Yea, ib_analysts, your statement is not correct. GM bonds for example are trading nowhere near their book value right now I don't believe. Someone correct me if I am wrong.
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MV of Debt is almost NEVER the same as BV. Most debt for corporations are based on a libor spread. If a company enters into an interest rate swap at a fixed rate for all of its debt (assuming this is possible without breaking covenants) then you could make a case for MV=BV, well it still wouldnt be equal but it may be close.
while market value of debt is probably theoretically better in all cases, in practice, book value is generally used unless the company is distressed, so ib_analysts is indeed correct. in distressed situations (of which there are of course unusually many today, as pointed out above) make sure to use market value. people tend to consider a company distressed when the debt trades below somewhere around 70 cents on the dollar. in those distressed situations, when calculating EV, you will also typically assume no value to the equity (even though the stock price is not 0). moneykingdom - corporate bonds have fixed coupons, not libor spreads.
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