Calculating capital structure - why mkt cap/EV?
Hey guys, hope you all are fine. Please help me with this question:
Why is it correct to calculate capital structure using Mkt cap/Enterprise Value?
For me it makes no sense to use the current value of equity (mkt cap) since the main idea of capital structure is to show where the company's funding came from and market cap doesn't show the inflow of cash that the company received when it issued the stocks (market cap could increase or decrease a lot, but the company's inflow from the issuing doesn't change).
I know there is a way to calculate it using shareholders' equity and debt and it makes a lot of sense for me, but I would like to know why people use mkt cap/EV.
Thanks for helping.
Could be wrong but it just shows the percentage of equity versus debt in the capital structure, not necessarily the different flavors of equity if that makes sense. It lumps all equity financing into one umbrella to view equity versus debt as far as I know.
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