Is current cash on hand factored in DCF model?
I know that the cash on the balance sheet is made up of the excess cash and WC cash. I know that WC cash will be included in the changes in WC in UFCF in the DCF model, but how about excess cash, where should excess cash fit in the DCF model to calculate enterprise value?
Additionally, when we say enterprise value=market cap+debt-cash, is the cash here referring to excess cash or the entire cash balance which is the sum of excess cash +WC cash?
Thx a million guys!!
Additionally, when we say enterprise value=market cap+debt-cash, is the cash here referring to excess cash or the entire cash balance which is the sum of excess cash +WC cash?
When you say cash in this formula, it is often defined/refined to mean excess cash. But excess cash is a very abstract concept and depending on what the person running the model wants, it may mean different things. In addition, depending on the company people may define it differently.
Not sure if this is helpful, but I hope it answers some of your questions.
when you are speaking about the formula for EV you are referring to excess cash that appears on the company's balance sheet.
when calculating UFCF you are not directly determining/considering the excess cash on the balance sheet at that point in time because it is not contributing to the current operations on a forward looking basis, it is simply just excess cash. It is also taken into account in the market value of equity metric and that is one of the reasons why we subtract it to arrive at enterprise value.
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