344  Moving from Enterprise Value to Value per Share
available, year-by-year tax savings will be difficult to assess because tax loss 
carryforwards must be matched in the country in which they are generated. 
A pragmatic approach is to assume the tax benefits will be realized over an 
arbitrary period—say, five years. If your valuation of tax loss carryforwards 
affects share price in a meaningful way, ask management for additional dis-
closures regarding the location and timing of tax credits.
Finally, be careful not to double-count future tax savings by also incorpo-
rating them into the projected free cash flow. Since we value tax loss carryfor-
wards separately, the tax loss carryforward is classified as a nonoperating asset 
and not included as part of either net operating profit after taxes (NOPAT) or 
invested capital.
Valuing Interest-Bearing Debt
With enterprise value in hand, subtract the value of nonequity claims to de-
termine equity value. Nonequity claims are found in the liability and equity 
sections of the balance sheet. Nonequity claims include traditional interest-
bearing debt, debt equivalents such as unfunded retirement obligations, and 
hybrid securities that have characteristics of both debt and equity. In this sec-
tion, we discuss traditional interest-bearing debt.
Traditional debt comes in many forms: commercial paper, notes payable, 
fixed and floating bank loans, corporate bonds, and capitalized leases. For 
companies with investment-grade debt, the value of debt will be independent 
of the value of operations. Consequently, each security’s value can be esti-
mated separately. For highly levered companies and companies in distress, 
this is not the case. In these situations, the value of debt will be linked to value 
of core operations, and both values must be determined concurrently.
Investment-Grade Debt  If the debt is relatively secure and actively traded, 
use the market value of debt.12 Market prices for U.S. corporate debt are re-
ported on the Financial Industry Regulatory Authority (FINRA) Trade Report-
ing and Compliance Engine (TRACE) system.13 If the debt instrument is not 
traded, estimate current value by discounting the promised interest payments 
and the principal repayment at a yield to maturity that reflects the riskiness 
12 When a bond’s yield is below its coupon rate, the bond will trade above its face value. Intuition 
dictates that, at most, the bond’s face value should be deducted from enterprise value. Yet since 
enterprise value is computed using the cost of debt (via the weighted average of cost of capital) and not 
the coupon rate, subtracting face value is inconsistent with how enterprise value is computed. In cases 
where bonds are callable at face value, market prices will rarely exceed face value.
13 Developed by FINRA, the TRACE system facilitates the mandatory reporting of over-the-counter 
market transactions for eligible debt securities in the United States. It is available to the public via 
FINRA’s website. At the time of publication, FINRA provided an online bond search tool on its home 
page.