Enterprise Value (EV) Calculator using WACC

This calculator helps you estimate the Enterprise Value (EV) of a business using its Free Cash Flow (FCF) projections, the Weighted Average Cost of Capital (WACC), and a perpetual growth rate. Understanding how to calculate EV using WACC is crucial for valuation.

Calculate EV with WACC

Summary of Inputs and Outputs

Parameter	Input Value	Calculated Value
EBIT	1,000,000.00	–
Tax Rate (%)	25.00	–
Depreciation & Amortization	150,000.00	–
Capital Expenditures	200,000.00	–
Change in NWC	50,000.00	–
WACC (%)	10.00	–
Growth Rate (%)	3.00	–
Debt	1,500,000.00	–
Cash	300,000.00	–
NOPAT	–	0.00
FCF0	–	0.00
Terminal Value (PV)	–	0.00
Firm Value	–	0.00
Enterprise Value	–	0.00

Summary of inputs used and key values calculated for the EV estimation.

What is Enterprise Value (EV) and WACC?

Enterprise Value (EV) represents the total value of a company, attributable to all its investors, including equity holders, debt holders, and preferred shareholders. It’s a more comprehensive measure of a company’s total worth than market capitalization alone because it includes debt and cash. To calculate EV using WACC (Weighted Average Cost of Capital) is a common approach within the Discounted Cash Flow (DCF) framework. WACC is the average rate of return a company is expected to pay to all its security holders (debt and equity) to finance its assets.

Anyone involved in corporate finance, investment analysis, mergers and acquisitions, or business valuation should understand how to calculate EV using WACC. It’s a fundamental concept for assessing a company’s value.

A common misconception is that EV is the same as market cap or equity value. EV includes the market value of debt and subtracts cash, giving a truer picture of the value of the core business operations, independent of its capital structure (up to a point).

Enterprise Value (EV) using WACC Formula and Mathematical Explanation

The most common way to calculate EV using WACC involves discounting projected Free Cash Flows (FCF) and a Terminal Value (TV) back to their present values using WACC as the discount rate.

The steps are generally:

1. Calculate Net Operating Profit After Tax (NOPAT): NOPAT = EBIT * (1 – Tax Rate)
2. Calculate Free Cash Flow (FCF) for the projection period and the base for the terminal period: FCF = NOPAT + Depreciation & Amortization – Capital Expenditures – Change in Net Working Capital.
3. Calculate the Terminal Value (TV) at the end of the explicit forecast period, often using the Gordon Growth Model (Perpetuity Growth Model): TV = (Final Projected FCF * (1 + g)) / (WACC – g), where ‘g’ is the perpetual growth rate.
4. Calculate the Present Value (PV) of each projected FCF and the PV of the TV by discounting them back to the present using WACC.
5. Sum the PV of FCFs and PV of TV to get the Firm Value (or Value of Operations).
6. Calculate Enterprise Value: EV = Firm Value – Market Value of Debt + Cash & Cash Equivalents (or sometimes EV = Firm Value + Non-Operating Assets – Debt). Our calculator simplifies by assuming Firm Value is primarily derived from operations and uses the formula EV = Firm Value – Debt + Cash, where Firm Value is derived from the perpetuity value of FCF.

For our simplified calculator, we calculate FCF0 based on inputs, assume FCF1 = FCF0 * (1+g), and then calculate Firm Value as the present value of a perpetuity starting with FCF1: Firm Value = FCF1 / (WACC – g). Then EV = Firm Value – Debt + Cash.

Variable	Meaning	Unit	Typical Range
EBIT	Earnings Before Interest and Taxes	Currency	Varies
Tax Rate	Effective Corporate Tax Rate	%	15-35%
D&A	Depreciation & Amortization	Currency	Varies
CapEx	Capital Expenditures	Currency	Varies
ΔNWC	Change in Net Working Capital	Currency	Varies
WACC	Weighted Average Cost of Capital	%	5-15%
g	Perpetual Growth Rate	%	0-5% (less than WACC)
Debt	Market Value of Debt	Currency	Varies
Cash	Cash & Cash Equivalents	Currency	Varies

Variables used in the EV calculation using WACC and FCF.

Practical Examples (Real-World Use Cases)

Example 1: Stable Manufacturing Company

Imagine a stable manufacturing company with the following financials:

• EBIT: $5,000,000
• Tax Rate: 22%
• D&A: $800,000
• CapEx: $1,000,000
• Change in NWC: $200,000
• WACC: 8%
• Growth Rate: 2%
• Debt: $10,000,000
• Cash: $2,000,000

NOPAT = $5,000,000 * (1 – 0.22) = $3,900,000

FCF0 = $3,900,000 + $800,000 – $1,000,000 – $200,000 = $3,500,000

FCF1 = $3,500,000 * (1 + 0.02) = $3,570,000

Firm Value = $3,570,000 / (0.08 – 0.02) = $59,500,000

EV = $59,500,000 – $10,000,000 + $2,000,000 = $51,500,000

This EV represents the total value of the company’s operations before accounting for the net debt position. Learning to calculate EV using WACC helps in comparing companies with different capital structures.

Example 2: Growing Tech Company

Consider a tech company with:

• EBIT: $2,000,000
• Tax Rate: 20%
• D&A: $300,000
• CapEx: $600,000
• Change in NWC: $100,000
• WACC: 12%
• Growth Rate: 4%
• Debt: $1,000,000
• Cash: $500,000

NOPAT = $2,000,000 * (1 – 0.20) = $1,600,000

FCF0 = $1,600,000 + $300,000 – $600,000 – $100,000 = $1,200,000

FCF1 = $1,200,000 * (1 + 0.04) = $1,248,000

Firm Value = $1,248,000 / (0.12 – 0.04) = $15,600,000

EV = $15,600,000 – $1,000,000 + $500,000 = $15,100,000

The higher WACC reflects higher risk, but the growth prospects still yield a significant firm value. Knowing how to calculate EV using WACC allows for such analyses.

How to Use This Enterprise Value (EV) Calculator

Using this calculator to calculate EV using WACC is straightforward:

1. Enter EBIT: Input the company’s Earnings Before Interest and Taxes.
2. Enter Tax Rate: Provide the effective corporate tax rate as a percentage.
3. Enter D&A: Input Depreciation and Amortization figures.
4. Enter CapEx: Add the Capital Expenditures.
5. Enter Change in NWC: Input the change in Net Working Capital.
6. Enter WACC: Input the Weighted Average Cost of Capital as a percentage.
7. Enter Perpetual Growth Rate: Add the long-term growth rate, ensuring it’s less than WACC.
8. Enter Market Value of Debt: Input the current market value of the company’s debt.
9. Enter Cash: Input the company’s cash and cash equivalents.
10. View Results: The calculator will automatically display the NOPAT, FCF0, Terminal Value (PV), Firm Value, and the primary result, Enterprise Value (EV). The chart and table will also update.

The results provide an estimate of the company’s total value. This is useful for investment decisions, M&A analysis, and internal value assessments. A higher EV suggests a more valuable company, all else being equal. Understanding how to calculate EV using WACC is key to interpreting these results.

Key Factors That Affect Enterprise Value (EV) and WACC Results

Several factors can significantly impact the calculated EV when using the WACC method:

• EBIT and FCF Projections: The foundation of the valuation. Higher, more sustainable FCFs lead to a higher EV. The accuracy of EBIT forecasts is crucial.
• WACC: A higher WACC (discount rate) implies higher risk or cost of capital, which reduces the present value of FCFs and TV, thus lowering the EV. Factors like interest rates, market risk premium, and company-specific risk influence WACC. Learn more about WACC calculation here.
• Perpetual Growth Rate (g): A higher sustainable growth rate increases the Terminal Value and, consequently, the EV. However, it must be realistic and less than WACC.
• Tax Rate: Higher taxes reduce NOPAT and FCF, lowering the EV.
• Capital Expenditures and NWC Changes: Higher investments in CapEx or NWC reduce FCF, thus decreasing the EV. These reflect the capital needed to sustain and grow the business.
• Market Value of Debt and Cash Levels: The final adjustment from Firm Value to EV depends directly on these balance sheet items. Higher debt reduces EV, while higher cash increases it.

Frequently Asked Questions (FAQ)

What is Enterprise Value (EV)?

Enterprise Value is the total value of a company, including its debt and equity, less cash. It represents the value of the core business operations.

Why is WACC used to calculate EV?

WACC represents the blended cost of capital for all investors (debt and equity). Since FCF is the cash flow available to all investors before debt payments, WACC is the appropriate rate to discount these cash flows to find the Firm Value, from which EV is derived.

Is a higher EV always better?

Generally, yes, a higher EV suggests a more valuable company. However, it should be compared to other companies in the same industry and considered in the context of its financials and growth prospects.

What is Terminal Value?

Terminal Value is the present value of all future cash flows beyond the explicit forecast period, assuming a stable growth rate (g) forever. It’s a significant part of the EV in many valuations. Our guide on terminal value provides more details.

How sensitive is EV to the WACC and growth rate?

EV is very sensitive to both WACC and the perpetual growth rate. Small changes in these inputs can lead to large changes in the calculated EV, especially in the Terminal Value component.

What if the growth rate is higher than WACC?

The formula for Terminal Value (gordon growth model) requires the growth rate (g) to be less than WACC. If g is greater than or equal to WACC, the formula breaks down, implying unsustainable infinite or negative value, which is not economically realistic in the long term.

How do I find the inputs like WACC or growth rate?

WACC is calculated based on the cost of equity and cost of debt, weighted by their proportions in the capital structure. The growth rate is usually based on long-term industry growth, inflation, and company-specific factors, often capped at the long-term risk-free rate or GDP growth. You might need a WACC calculator or financial data services.

Can I use this method to calculate EV for any company?

This method is best suited for stable companies with predictable cash flows. For startups or companies in very volatile industries, other valuation methods might be more appropriate, or the FCF projections and WACC will have higher uncertainty. Exploring business valuation methods can be helpful.