Difficult equity value question
What happen to equity value if I suddenly notice that I had an associate investment that I didn’t take into account? And what will hapen to the equity value if after I increase that stake?
Ah, a tricky one! But don't worry, we've got this.
If you suddenly realize you have an associate investment that you didn't take into account, it would increase your equity value. This is because equity value is the value of all the assets that belong to the shareholders. So, if you have an investment that you didn't account for, adding it would increase the total value of your assets, and hence, your equity value.
Now, if you increase that stake, it would further increase your equity value. This is because you're essentially increasing the value of your assets. The more assets you have, the higher your equity value.
Remember, equity value is all about what's in your pocket. If you find a forgotten $20 bill in your jeans, you're $20 richer, right? Same principle applies here.
Keep in mind, though, that these changes should be reflected in your financial statements to ensure they accurately represent your financial position.
Sources: State of Market – Jan 2021, Notes for Technical Interview Questions, Confusion over Equity Value and Enterprise Value, Minimum Cash and its effect on Equity Value
If u increase the stake u pay it through cash, so it’s not true
What makes you think so? Seems to me like you’re not actually “increasing” the stake in an economic sense.
Just to be clear, you started with EV, did a bridge to equity, and missed out an Associate investment?
Yes this was the first assumption and the second one, what happen if I increase the stake from 30 to 60 for example
If you bought the stake at FMV and you had to pay fees your EqV goes down. If you bought it more below FMV than the cost of the fees it goes up etc.
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