Return on Enterprise Value (ROEV) – Best Stock Valuation Calculation

stock market tips

Enterprise Value

Return on Enterprise value (ROEV) is a stock valuation formula used in value investing strategies. Combining enterprise value and net cash flow into a ratio provides a powerful tool for investment analysis.

Return on Enterprise Value

Return on Enterprise Value (ROEV) is net cash flow divided by enterprise value. I believe it is the single most valuable stock valuation calculation in the investment universe. An investor should never make investment decisions based on a single calculation, but if I could only use one stock valuation formula it would be ROEV.

Stock Valuation Calculation

Net Cash Flow (NCF) divided by Enterprise Value (EV) = Return on Enterprise Value (ROEV)

Use Net Cash Flow as the numerator and Enterprise Value as the denominator to calculate the Return on Enterprise Value.


Compare and Value Company Shares

Enterprise value provides the most valuable business valuation metric. One of the advantages of enterprise value is that it equalises companies with different capital structures by making adjustments for debt and cash. This provides equality for comparing the performance of companies with very different balance sheets. By adjusting for debt and cash, enterprise value provides the total value of a company as if you were purchasing the whole business at the current market value.

Net cash flow provides the most important financial income metric: How much cash is generated from operations. Profits can be deceiving due to accounting entries. Cash flow is real and is hard to manipulate.

Combining cash flow and enterprise value as a ratio produces Return On Enterprise Value. ROEV provides the analyst the rate of return on the total value of the business (EV). In other words it measures, as a percentage, the real amount of money (cash flow) being produced today (not accounting profits) based on what the business is valued at today (not book value).

What do you think of Return on Enterprise Value as a value investing strategy?

 

ABOUT AUTHOR

Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While tracking the mood swings of the market we bring our clients the most rewarding deals.

LEAVE A COMMENT

RECOMMENDED READING

5 Best Shares To Buy Today For Short Term

The general rule of thumb is that shares bought for less than one-year holding duration are considered as short-term shares. Here are the 5 best shares to buy today for short term duration of around six months. These top shares ca
Read More>>

Best Shares To Buy For Short Term In November 2018

In general, Short-Term investments are considered to be riskier than long term investments. But, short-term investments are important for making more profit from cash savings or liquid assets. Below were the best stocks to buy in Oct 2018, read
Read More>>

Best Long-Term Investment Options In India For 2019

Your money has wings, by the time it’s going to fly away from you. That’s why taking care of your hard earned money smartly is very important. A lifestyle without money is just like a bike without fuel. Who doesn’t want to maintain own lifestyl
Read More>>

Election Results To Set Markets On Fire

Our Analysis The Reserve Bank of India (RBI) on December 5 kept the repo rate, its key lending rate, unchanged at 6.5 percent, but left the door ajar for reducing loan rates in the c
Read More>>

Share Market News: Today’s Nifty & Sensex Updates

Share Market News 12-December-2018
Read More>>