EV in IPO models

Based on the most helpful WSO content, here's how to think about your scenario:

1. Enterprise Value (EV) and Equity Value Relationship:

   • Before the IPO, EV equals Equity Value because Net Debt is $0.
   • EV is calculated as $$10 \times 100 = 1,000$$ (based on the EV/EBIT multiple of 10x and EBIT of 100).

2. Pre-Money Equity Value:

   • Pre-money Equity Value is the value of the company before the IPO cash injection. Since EV = Equity Value pre-IPO, the pre-money Equity Value is $1,000.

3. Post-Money Equity Value:

   • After raising $500 in cash, the post-money Equity Value becomes $1,500. This is because the cash raised is added to the Equity Value, but it does not affect EV directly (as EV excludes cash).

4. Share Price and Shares Issued:

   • Pre-money share price is calculated as: $$\text{Pre-money Equity Value} / \text{Shares Outstanding} = 1,000 / 100 = 10$$.
   • To raise $500, the company issues: $$\text{Capital Raised} / \text{Pre-money Share Price} = 500 / 10 = 50 \text{ new shares}$$.
   • Total shares outstanding post-IPO = 100 (existing) + 50 (new) = 150 shares.

5. Post-Money Share Price:

   • Post-money share price remains the same as the pre-money share price, i.e., $10 per share.

6. Enterprise Value Post-IPO:

   • EV remains $1,000 post-IPO because the cash raised ($500) is added to the balance sheet and does not impact EV directly.

Key Takeaways:

• Pre-money Equity Value = $1,000.
• Post-money Equity Value = $1,500.
• EV remains constant at $1,000.
• The confusion in your calculation arises from mixing EV and Equity Value. Remember, EV excludes cash, so the $500 raised does not increase EV but does increase Equity Value.
  
  Sources: Minimum Cash and its effect on Equity Value, DCF Modeling Course ~ Pre-training text.pdf, Pre-money vs. post-money valuation and Modigliani Miller, Pre-Money vs Post Money Valuation