Interest Bearing Debt
Why is only interest bearing debt included in EV? I understand that sometimes you include pension liabilities, capital leases, etc., but why aren't all liabilities included? Wouldn't these need to be paid off by an acquirer?
Not fully sure, but my understanding is as follows:
Stuff like accounts payable and short-term debt is usually short-term vendor financing. Assuming you're buying the company, you wouldn't necessarily have to pay out these obligations if you intend to operate the business as usual.
Hope that helps - someone lmk if I'm wrong.
All parties that can make claim on a company's assets are included in EV.
Equity = regular share holders Debt = debt holders and creditors (who have rights to a company's assets in the case of default) Preferred Equity = preferred share holders
A party that you owe money to, for example an accounts payable liability, doesn't necessarily hold a claim on a company's assets. Sure the company may owe them money, but that person can't really come after the company and try to take a piece of it for themselves. Disclaimer: this is true most of the time; there may be special circumstances.
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