Tuesday, August 25, 2009

The enterprise value of China Crescent Enterprises

China Crescent Enterprises released their Q2 earnings last Friday. They also released a webcast. I've written previously about whether or not this stock is too good to be true. I mean, on the surface, it seems incredibly cheap. So now, I'm going to apply another valuation metric: enterprise value. Enterprise value gives you a better idea of the total cost of control of a company than simply using market capitalization. Market capitalization only measures equity, while enterprise value includes debt. After all, isn't a house worth the equity you've accumulated plus the mortgage? The same is true with a company. When you buy one you either assume its debts or retire them.

Figures were obtained from recent SEC filings for Q2 2009 and Yahoo! Finance.

China Crescent Technologies' enterprise value is approximately $1,482,058. How did I get that? I took the market cap ($305,691)- cash ($2,259,195) + total liabilities ($3,435,565)

Okay, so now we know how much the whole shebang costs. That's probably of very little use to you unless you are a corporate raider or looking to acquire the entire company for some reason.

In tomorrow's post, we'll learn how to properly apply this number in order to yield meaningful metrics.

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