Cash & Enterprise Value
What happens to a company’s Enterprise Value if let’s say $100mm of cash “disappears”???
Someone said it stays the same but he’s explanation was all over the place, so i would appreciate your input.
Dr. Loss $100
Cr. Cash $100
EV stays the same because net debt increases by $100 but equity decreases by $100.
This is literally correct, no idea why the ms. Probably IB analysts freak out if they see a journal entry lol
EV is the value of net core operating assets. And cash is not an operating asset. So a decrease in cash would not decrease EV
If you are wondering how 3 statement flows, IS: no change, CFS: down 100, BS: asset side down 100, equity down 100. So it balances out
This is wrong unfortunately
I like the point about non core operating asset, but ppl are expecting the over simplified cash is subtracted to get to EV
Didn’t ms you. I see what ppl are expecting. But that’s the intuition of enterprise value. Many ppl get tripped up on formulas. So I thought it would make more sense to explain it that way to cross check.
EV remains the same. However, equity value decreases by $100mm.
Could you elaborate on how EV stays the same. If Equity Value is affected, shouldn't EV also be affected?
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