How do you compute the value of the firm?

Question

do you just add debt and equity? or equity minus debt? thanks.

Answer 1

Number of shares outstanding multiplied by price per share.

If it's not a publicly traded company then it gets much more difficult.  Book value will give a very rough - and low - approximation since it assumes the business is simply liquidated and gives zero value to the "going concern".  Book value would be assets minus liabilities.

Answer 2

Many ways to value a firm:

Book Value = net assets from the balance sheet (assets minus liabilities).   Basically, the net worth = equity.

Liquidation Value:  if everything were liquidated.

Replacement cost value:  the cost to replace everything.

or:

The discounted (to the present value) expected cash flows of the firm over say a 10 year period.  This one is commonly used.