lets say if someone just gave you cash 100 for free, then your enterprise value decrease by 100?
Well. for the formula, yes, it seems,the enterprise value should decrease by 100 since net debt would be -100...
but.. seems it would not be that simple and remember I saw some post saying the ev stays the same... but cannot find out where I saw that post and cannot reason out ....
Please help me out..
thank you !!!
Your enterprise would remain the same because while Cash & Cash Equivalents increases by $100, so does Equity Value. The Increase in C&CE is offset by the increase in Equity Value.
thank you for the explanation! :) just want to clarify, so.. in any case cash and cash equivalents change, it would not affect the enterprise value at all? since the equity always captures those change in cash already, and it offsets?
best to interpret this through balance sheet accounting.
Assets: C&CE up 100 to balance out, Equity up 100
TEV doesn't change because you have delta(TEV) = (+100 delta (equity)) - (+100 delta ( C&CE)) = 0.
the idea is that any the equity value should automatically correct. if your house suddenly has a windfall of 100, the equity (shares) of that house should clearly increase. alternatively, if the house had leverage, the cash goes to pay off debt so that (with a fixed TEV) your equity now holds a larger share of that TEV pie
Is this assuming its balanced with an addition to common stock?
If someone gave you $100 for free, you should invest in internet access and use the search bar.
You must have incredibly low self esteem.
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