In this table, I can see a very short EV to equity bridge. I've got an EV enterprise value of a thousand. I add on cash of 100, I subtract off debt of 300, or I subtract net debt of 200, and that gets me to my equity value of 800. If I divide that by the number of shares, that gets me to a share price of eight. Now, what's interesting in that is that gives me two very particular value numbers that I want to focus on the EV of a thousand and the share price of eight. I'd like to think what drives those values. Well, here we have a second table, and in this second table, this is an income statement extract. We've got EBIT of a hundred, and if I add the interest income, subtract the interest expense and tax, that gets me to net income of 60.2. If I divide that by the number of shares, so 100, again, that gets me to EPS or earnings per share of 0.6, what we can see is that this income statement extract actually links up to that EV equity bridge in the table on the left. If I think what is EV or enterprise value, it's the net operating asset of a business. And if I think what is EBIT? Well that's really your operating profit of the business. We can thus say that if I've got the operating profit, what is that driving? Well, that's driving the value of my net operating asset my ev, ev and EBITs are thus joined together. In addition, my share price, what's driving the value of my share price? Well, the earnings attributable to each shareholder are going to be a major driver of the share price, and that is contained within your EPS.

So we might say the higher the EPS, the higher the share price, and alternatively, the higher the EBIT, the higher the ev. We have to be careful here that the value has to be consistent with a value driver. EV and EBIT go together nicely. Share price and earnings per share go together nicely.

This gives us an important item now called the multiple. Thus the relationship is that my EV is 10 times higher than the EBIT and also the share price is 13.3 times the earnings per share. Where is this useful? Well, maybe this is a very similar company to mine. If I take that EV multiple of 10, I could apply that to the EBIT of my Company and I could take my EBIT times it by 10 and work out a theoretical EV for my company. Alternatively, I could take the PE ratio, I could multiply my earnings per share by 13.3 and work out a theoretical share price for my company. Fantastic. So this helps me work out how much investors pay in relation to a value driver.