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Pascal PIERRE edited section_Building_a_Profitability_Valuation__.tex
almost 8 years ago
Commit id: 677817a19dc361e7f2c452fa1793d942b10decc8
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If we define Enterprise Value as the market value of Debt and Equity minus the cash a firm holds, it appears clear from these accounting identities that Enterprise Value is the market value of the operating assets. We define Invested Capital as the book value of the operating assets,
also equal to the book value of Debt and Equity. Following the Profitablity-Valuation framework based on earnings and equity, the challenge is to link the DCF defined in (9) to a Profitablity-Valuation relationship where valuation is a ratio that relates the market value of operating assets $EV_{t}$ to the book value of the operating assets $IC_{t}$.
Thirdly, we need to identify a certain number of accounting identities similar to the ones we used for the \textit{RIM} in order to link cash-flow generation, the balance sheet and the market value of the balance sheet.
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