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Computerized Investing > Fourth Quarter 2010

Using the Enterprise Value Ratio

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by CI Staff

In John Bajkowksi’s First Cut column in the June 2008 issue of the AAII Journal, he discussed how to use “enterprise value” to locate bargains in the stock market (the article is available online at AAII.com). The enterprise value, or EV, is the value the market places on a firm as a whole.

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Discussion

John from FL posted over 3 years ago:

Can/would you create custom fields for EV and EBITDA in AAII? If not, could you create custom fields that as closely as possible resemble EV and EBITDA and then discuss how to make adjustments using AAII to calculate them


John Bajkowski from IL posted over 3 years ago:

This the enterprise value calculation in Stock Investor Pro that I have used recently in AAII Journal First Cut articles:

-FC Enterprise Value
[Market Cap Q1]+[Long-term debt Q1]+[Preferred stock Q1]+[Short-term debt Q1]-[Cash Q1]


John from IL posted over 3 years ago:

This the EBITDA custom field calculation from Stock Investor Pro that I have used recently in First Cut articles. Note that this calculation starts with pre-tax income so there is no need to add back taxes:

-FC EBITDA: [Pre-tax income 12m] + IIF(IsFieldNull([Interest expense 12m])=0,0,[Interest expense 12m]) + IIF(IsFieldNull([Depreciation 12M])=0,0,[Depreciation 12M])


John from IL posted over 3 years ago:

Here is the enterprise value to EBITDA ratio calculation custom field. Not that it is checking for positive values for both enterprise value and EBITDA:

- FC EV to EBITDA: IIF([-FC Enterprise Value] > 0, IIF([-FC EBITDA] > 0, [-FC Enterprise Value]/[-FC EBITDA],null),null)


William Fothergill from MA posted about 1 year ago:

You don't indicate the date of the stock's price when calculating Market Cap.
Shouldn't this be the date of the actual earnings release or the date in time for the balance sheet information? Otherwise the EV calculated is not consistent with data presented.
What price dates does Stock Pro use in the EV figures presented?

Thanks, Bill


Ronald Rosenfeld from ME posted about 1 year ago:

With regard to the multiple EV/EBITDA, it seems only about 1/3 of the stocks (3306) in the database have an EBITDA; and fewer (2207) have this ratio calculated. Why are there so few with EBITDA?


Wayne Thorp from IL posted about 1 year ago:

One of the components of EBITDA is depreciation/amortization. More and more, companies are not breaking these items out on the income statement. While they may list these items on the cash flow statement, we choose not to intermingle line items from different financial statements. If a company has not explicitly broken out depreciation/amortization on the INCOME STATEMENT, it is will have an EBITDA figure and, therefore, no EV/EBITDA value. Wayne A. Thorp, CFA, Stock Investor Program Manager


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