Problems with Enterprise Value and better valuation techniques
This is a tough question SFun28.  Let's try and debug the metric. First, let's expand upon the notion share price is determined in an efficient market where prospective buyers and sellers have access to info on an enterprises' cash balance and they may weigh that into their decision making.  Therefore, a desirable/undesirable cash balance may raise or lower the share price, to what extent, we do not know.   We must ask How significant is cash/debt balance in determining the market price of a stock?   As you noted, we have limited info, which may decrease the weight of these account balances in our decision process. Using a materiality level of 5% of net income of operations, cash/debt may be immaterial or not considered by an investor. investors oftentimes interpret the same information differently (e.g. Microsoft's large cash balance may show they no longer have innovative ideas worth investing in, or they are well positioned to acquire innovative companies, or weather a contraction in the sector) My guess is a math mind would ignore the affect of account balances on the equity portion of the enterprise value calculation because it may not be a factor, or because the affect is subjective. How you use the metric is super important.   Because it subtracts cash, it does not represent 'value'.  It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash.   So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0.  If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless. "From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when   comparing companies with diverse capital structures. Price/earnings   ratios, for example, will be significantly more volatile in companies   that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between   equivalent companies on a risk-adjusted basis. They can then   superimpose their own choice of debt levels. In practice, equity   investors may have difficulty accurately assessing EV if they do not   have access to the market quotations of the company debt. It is not   sufficient to substitute the book value of the debt because a) the   market interest rates may have changed, and b) the market's perception   of the risk of the loan may have changed since the debt was issued.   Remember, the point of EV is to neutralize the different risks, and   costs of different capital structures. Buyers of controlling interests in a business use EV to compare   returns between businesses, as above. They also use the EV valuation   (or a debt free cash free valuation) to determine how much to pay for   the whole entity (not just the equity). They may want to change the   capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the   outstanding number of shares in issue are readily available and easy   to find, it is virtually impossible to calculate an EV without making   a number of adjustments to published data, including often subjective   estimations of value: In practice, EV calculations rely on reasonable estimates of the   market value of these components. For example, in many professional   valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the   numerator should correspond to the denominator. The EV should,   therefore, correspond to the market value of the assets that were used   to generate the profits in question, excluding assets acquired (and   including assets disposed) during a different financial reporting   period. This requires restating EV for any mergers and acquisitions   (whether paid in cash or equity), significant capital investments or   significant changes in working capital occurring after or during the   reporting period being examined. Ideally, multiples should be   calculated using the market value of the weighted average capital   employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic   multiples vs forward multiples), EV should be adjusted to reflect the   weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is   determined by buyers and sellers who have access to data on cash and   debts and factor that into their decision to buy or sell. Note the first point under ""Technical Considerations"" there and you will see that the ""access to data on cash and debts"" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum." "This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your ""equity"" or ""market cap"" is $20,000. But the total value, or ""enterprise value"" of the house, is actually $100,000, counting the $80,000 mortgage.  ""Enterprise value"" is what a buyer would have to pay to own the company or the house ""free and clear,"" counting the debt."
I look at the following ratios and how these ratios developed over time, for instance how did valuation come down in a recession, what was the trough multiple during the Lehman crisis in 2008, how did a recession or good economy affect profitability of the company. Valuation metrics: Enterprise value / EBIT (EBIT = operating income) Enterprise value / sales (for fast growing companies as their operating profit is expected to be realized later in time) and P/E Profitability: Operating margin, which is EBIT / sales Cashflow / sales Business model stability and news flow "I would differentiate between pricing and valuation a bit more:  Valuation is the result of investment analysis and the result of coming up with a fair value for a company and its shares; this is done usually by equity analysts. I have never heard about pricing a security in this context. Pricing would indicate that the price of a product or security is ""set"" by someone (i.e. a car manufacturer sets the prices of its new cars). The price of a security however is not set by an analyst or an institution, it is solely set by the stock market (perhaps based on the valuations of different analysts).  There is only one exception to this: pricing an IPO before its shares are actually traded on an exchange. In this case the underwriting banks set the price (based on the valuation) at which the shares are distributed." "There are two components of option valuation, the value that's ""in the money"" and the ""time value."" In the case of the $395 put, that option was already in the money and it will move less than the stock price by a bit as there will still be some time value there. $22.52 is intrinsic value (the right word for 'in the money') and the rest is time. The $365 strike is still out of the money, but as jldugger implied, the chance of it going through that strike is better as it's $6.66 closer.  Looking at the options chain gives you a better perspective on this. If Apple went up $20 Monday, and down $20 Tuesday, these prices would be higher as implied volatility would also go higher.  Now, I'd hardly call a drop of under 2% ""tanking"" but on the otherhand, I'd not call the 25% jump in the option price skyrocketing. Options do this all the time. Curious what prompted the question, are you interested in trading options? This stock in particular?" I strongly suggest you go to www.investor.gov as it has excellent information regarding these types of questions. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. When you buy shares of a mutual fund you're buying it at NAV, or net asset value.  The NAV is the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. Different funds may own thousands of different stocks.  In order to calculate the NAV, the fund company must value every security it owns.  Since each security's valuation is changing throughout the day it's difficult to determine the valuation of the mutual fund except for when the market is closed.  Once the market has closed (4pm eastern) and securities are no longer trading, the company must get accurate valuations for every security and perform the valuation calculations and distribute the results to the pricing vendors.  This has to be done by 6pm eastern.  This is a difficult and, more importantly, a time consuming process to get it done right once per day.  Having worked for several fund companies I can tell you there are many days where companies are getting this done at the very last minute. When you place a buy or sell order for a mutual fund it doesn't matter what time you placed it as long as you entered it before 4pm ET.  Cutoff times may be earlier depending on who you're placing the order with.  If companies had to price their funds more frequently, they would undoubtedly raise their fees. Would make sense that the higher liquidation cost and Transaction costs are driving the share price down.   Higher liq and transaction means higher investors would require higher return, driving down the share price. The other possibilities I can think of off the top of my head, based on looking at the firm for five minutes  1) In transaction costs, did you include tax? Disclaimer: math below done on the back of the envelope in between meetings;  So, NAV says they are at ~$75M. Liquidating that entire portfolio means about 22% capital gains tax rate. Which means after tax value is about $60M. Add in any fees you'd incur from trying to sell this stuff, and it's not unreasonable to assume you'll only get about $55M once all is said and done, which is pretty close to the actual market cap.   If you have accounted for the above, consider ;  2) Bulk of their investments seem to be in private assets. Which implies that they have some discretion in how they mark the value of those investments. And, there is the chance that the market doesn't have confidence in these guys. What's their performance been like in recent years? Especially with a private asset portfolio, I'd be weary.   If I was to invest in them, I'd want a higher return for the opaque portfolio. Having all of the numbers you posted is a start. It's what you need to perform the calculation.  The final word, however, comes from the company itself, who are required to issue a determination on how the spin-off is valued. Say a company is split into two. Instead of some number of shares of each new company, imagine for this example it's one for one. i.e. One share of company A becomes a share each in company B and company C. This tell us nothing about relative valuation, right? Was B worth 1/2 of the original company A, or some other fraction? Say it is exactly a 50/50 split. Company A releases a statement that B and C each should have 1/2 the cost basis of your original A shares. Now, B and C may very well trade ahead of the stock splitting, as 'when issued' shares. At no point in time will B and C necessarily trade at exactly the same price, and the day that B and C are officially trading, with no more A shares, they may have already diverged in price. That is, there's nothing you can pull from the trading data to identify that the basis should have been assigned as 50% to each new share. This is my very long-winded was of explaining that the company must issue a notice through your broker, and on their investor section of their web site, to spell out the way you should assign your basis to each new stock. Maybe one of my issues is that I have a 5 year model with a terminal value. The repayment of debt principal is outside this time frame so I don't assume any repayment.   If you're valuing a company share price though you don't model all debt repayments. Depending on the improvement, you have to amortize or depreciate it over time, which effectively allows you to write off the value over a period of years, even if you pay for it all up front. This messes with cash flow, which is different than profitability, but when you span the write off over five or ten years, the distinction between cash flow and profitability for a private, self funded company is irrelevant. If the money ain't there, the money ain't there. Operating capital is life blood.  Taxes also alter the ROI equation of the investment, since you don't keep all the money you put in.  Way over simplified example: Lets say I close out the year with some arbitrary profit - ten million bucks - in my war chest. 3.5 could go to taxes. I also know that my supplier can't handle my volume for next year while the season is hot, so I'd like to buy inventory in the off season. Last year I sold 6.5 mill worth of stuff from this supplier, but I estimate I could sell 9-10 mill if I didn't have availability problems. If I buy 9-10 mill in inventory, I can't pay taxes. If I pay taxes, I can't buy enough to grow next year.   Sure, COGS is a deductible expense, but the expense isn't realized until the inventory is sold, which won't be until long after these taxes are due.  I now have taxes interfering with my expansion, even though eventually I can write that off.  Now lets look at the manufacturer - sure he could expand his capacity and make more money, but he has to deduct the 5 mill machine he needs over twenty years (or ten or whatever) while the purchase price needs to be made today. This year he's gonna pay tax on 90 or 95% of the money he used to buy that machine, which would eat into the money he needs to buy raw materials to fill orders he already has.  Of course, the real world is much more complicated, and you can leverage leasing agreements and purchasing terms to alleviate this to some extent, but I wanted to illustrate a point. I hope my extremely simplified example communicated what I mean.  Does that make sense?