Guide to Analysing Companies

Enterprise value
The value of a company’s equity plus the debt that it
employs (that is, the total amount of capital at its disposal).
The measure is usually used in conjunction with a company’s
earnings before interest, tax and depreciation and
amortisation (ebitda) compared with the amount of free
cash that it is generating. The ratio of enterprise value to
ebitda is often used instead of the price/earnings ratio
for companies whose accounts have large amounts of depre-
ciation or amortisation.
Eonia
See euro overnight index average.
EPS
See earnings per share.
E
EPS
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Equity
The ownership interest of shareholders in a company, as in “he
launched a new company last year and has 20% of the equity”.
On the company’s balance sheet, equity is what is left over
when all the company’s external liabilities have been de-
ducted from the assets. Hence the use of the term equity to
refer to an ordinary share in a company, private or public.
Equity has also come to mean the excess of surplus value of
a capital asset over and above the debt still owed on the asset.
For example, the amount by which the market value of the se-
curities in a customer’s margin account with a broker
exceeds the debt still owed on the account; or the amount by
which the market value of a house exceeds the mortgage on
the house. (See also negative equity.)
Equity carve-out
The sale by a parent company of a minority stake in one of its
subsidiaries by means of an initial public offering. The
usual purpose of an equity carve-out is to give the stock-
market a chance to value separately a particular part of the
company which is growing faster than the rest. (See also
tracking stock.)