Enterprise Value w/ Accounts Payable?
Hi,
I have a question regarding the Enterprise Value calculation. Simply put, it is equity value + Debt - Cash. I always reminded myself that it is the same as total assets minus cash, but now I have come to the conclusion that this is likely wrong for the reason that Accounts Payables and likely other posts are not included in the Enterprise Value calculation. Let's say I have 200 in real estate assets, 50 in accounts payables and 50 in long term debt. This would mean my Enterprise Value is 100 (equity) + 50 debt = 150, which does not reflect the total asset value of a house. I could understand Enterprise Value's point if it would simply be total assets minus cash, but now that posts like AP are not included I really do not see why you would calculate it.
I hope you can help me out.
When you talk about "debt" in the EV formula, that's only interest-bearing debt. So A/P, as an operating liability, wouldn't be included. If material, an adjustment might be made. In a more complex model (DCF, LBO), you can account for it in the FCF calculation, which ultimately feeds into EV.
http://aswathdamodaran.blogspot.com/2013/06/a-tangled-web-of-values-ent…
See this post by Damodaran. I believe it was on here once but I couldn't find it.
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