Hi,
this is very basic but I find so many conflicting explanations of this. Is market cap just referring to common stock times the number of fully diluted shares outstanding, or are basically all shares outstanding (i.e also preferred etc.)?
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Just common stock, because preferred shares are added into implied equity value
So what would be more appropriate as an answer to why to add preferred stock to EV: what is more appropiate of an answer to why preferred stock is added to EV?
1.) Because Equity Value only contains common stock
or
2.) Because preferred stock is senior to common stock and therefore viewed more as a debt-like item?
following - have the same question
More like a debt item
Neither are wrong. The first answer is probably better because preferred stock isn't usually included in equity (market) value. In this context it doesn't really matter what you call it, as long as you count it. The most complete answer I can give is:
EV is a measure of the value of all the capital currently deployed by the business. Therefore to the extent preferred stock isn't already included in either equity value or net debt, it must be added.
Market cap definitionally only includes common stock and potentially any options on common stock
Preferred stock is definitionally excluded from market cap
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