- Theestimatedmarketvalueofminorityholdingsin
other firms should be subtracted from the market
valueofequitytoarriveattheenterprisevalue,since
the revenuesfrom these minority holdings arenot
considered when computing the parent company’s
revenues. - Intheeventtherearemajorityholdingsthatarefully
consolidated,weshouldaddbackthemarketvalueof
minorityintereststotheenterprisevaluetoarriveat
the composite value of the firm that can then be
scaledtothetotalrevenuesofthefirm(whichwill
include the revenues from the subsidiary).
Alternatively, we can focus on just the parent
company’s enterprise value and revenues.
Activity Variables
Thefinalset ofvariablesthatrelatetofirmperformanceis
derived from variables that measure operating activity
rangingfromunitsproducedtonumberofcustomers.Thus,
themarketvalueofacablefirmcanbedividedbythenumber
ofsubscriberstoarriveatmarketvaluepercablesubscriber.
In the late 1990s, a number of Internet companies were
valuedbasedonmultiplesofwebsitevisitorsorevenasa
multiple ofhow muchtime wasspent looking atthe web
sites.Ingeneral, themeasureofvaluethatmakesthemost
senseforusewithactivityvariablesisenterprisevalue,where
cash is netted out from the market value of debt and equity.
DISTRIBUTIONAL CHARACTERISTICS OF VALUE
MULTIPLES