IB Technical
A company has a P/E = 20x, 100 shares outstanding, $50 debt, $100 cash what is the EV and EqV?If the company suddenly lost $50 of cash, how would that change?
Can anyone take a stab at this?
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we need to know the market price/share to calculate EqV
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Need Net Income here... you would multiply NI x P/E to get Equity Value and then + Debt - Cash for EV.
For the second question, EqV would stay the same and EV would increase by $50.
As others have said, the first part is not possible, would need either share price or NI.
Isn't cash non operating asset, how does that affect the enterprise value?I get that you subtract Net Debt (in this case the cash at hand) from EqV to get to EV, but don't get the whole picture
Cash can be an operating asset. Was assuming that it was for this case, but should probably clarify this.
EV = EqV + Debt - cash
So, $50 less cash means you subtract $50 less, hence EV is $50 higher.
The theory behind why cash is included is something like excess cash can be used to pay down debt, so you could theoretically have less debt in your EV.
Use your brain. If a company has $50m less of cash, the Enterprise Value doesn’t go up. You just have more Net Debt, which means that your equity is lower.
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