My professor says EV is not equal to VoP (value of operations) is he correct?
I recently completed a stock pitch where I forecasted the company’s financial statements and built a DCF. I discounted the projection period cash flows and terminal value, summed them, and treated that result as Enterprise Value (EV). The reviewer told me this was incorrect and that what I calculated was actually the Value of Operations (VoP), not EV.
I understand how to calculate both, and I know they eventually reconcile to the same equity value. After getting to EV, you would subtract total debt, minority interest, and preferred stock, then add back cash (and adjust for non-operating assets) to arrive at equity value. Likewise, when starting from VoP, you add non-operating assets to reach the intrinsic value of the firm, then subtract all interest-bearing debt (short-term, long-term, and capital leases) to get intrinsic equity value. Finally, dividing by diluted shares gives your implied stock price.
My question is: What is the difference between these two valuation frameworks? My current thought is that the concepts are similar but structured differently, one being more common in M&A contexts while the other is used more purely for intrinsic valuation.
Who the hell uses VoP.
Value of operations (net enterprise value) and gross enterprise value are very different. While I agree value of operations isn't something that will come up in real life, and is more of a concept that you'll cover in upper-division finance classes, I do think its important to distinguish the two. Value of operations represents the actual cash generating footprint of the business (value from operating assets), while gross enterprise value calculates what you will need to pay to own the business. Both concepts are very important IMO, especially if you're dealing with messy family-operated businesses that have been passed down for generations, where a significant portion of enterprise value comes from non-operating assets (ex. sports teams, artwork, random pieces of real estate, etc.)
Ah, I see. Thanks for clarification.
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