One of India's ace value investors recently came on Bloomberg TV and disclosed that he had purchased NIIT (a large training and skill development services provider) for Zero Enterprise Value. And he simply said, "yes, buying NIIT for zero enterprise value was the investment rationale".
Though I have known the EV concept for quite some time now, it was this Khan Academy video which clarified the concept to me better. So if you are watching that video, I need not elaborate further.
I think in the video the real concept that became clear to me was that EV is clearly focusing on "valuation of the operating assets (i.e., the enterprise)" and it ignores the non-operating assets such as cash. This focus on operating assets is a very useful way of:
Though I have known the EV concept for quite some time now, it was this Khan Academy video which clarified the concept to me better. So if you are watching that video, I need not elaborate further.
I think in the video the real concept that became clear to me was that EV is clearly focusing on "valuation of the operating assets (i.e., the enterprise)" and it ignores the non-operating assets such as cash. This focus on operating assets is a very useful way of:
- Comparing two enterprises where the operating assets have been created with different capital structures (in terms of equity and debt/liabilities) and
- Comparing the operating profits that each enterprise is generating for a given amount of operating assets
This is really the practical importance of EV - it gives you a handle on the value of the "core business operations and the "operating profits" the business operations is generating.
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