Hi
Ive been doing this DCF valuation of TATA motors and im getting negative EQUITY VALUE PER SHARE
they have negative NET WORKING CAPITAL, Negative EBITDA which is further affecting the Reinvestment rate and here in INDIA the tax rate is 25%
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Do you mean negative shareholders' equity? It's not possible to have negative equity value. The minimum equity value can be is 0.
It isn’t? I know nothing about tata but in theory if net debt > enterprise value, the equity has a negative value. Which (obviously) doesn’t mean that shareholders are liable for that, but I’m not sure why the eq value in a dcf cannot possibly be less than zero.
eq value is the market cap i.e shares outstanding x share price (neither of which can be negative - shareholders have limited liability in that if a stock goes to 0, they simply lose their investment) or in the case of a dcf, you’d divide eq value by shares outstanding to get to the implied share price, in which case negative eq value would yield a negative share price, also not possible
No. The market cap is what investors (if it's public) think the equity is worth. If they think that's zero or less than zero the share price does not, obviously, clear any market - public or private - at a negative number, but we are talking about a valuation, not a range of possible share prices at which investors transact. The OP was about a DCF that yielded a negative share price. That is entirely possible, and it is exactly what a DCF would spit out if you ran one on a company whose future cash flows in perpetuity had a value that was lower than its net debt balance. Ask yourself this: What share price would a DCF have generated if you'd modeled an accurate one on wework or lehman immediately prior to either one's bankruptcy?
Really not sure how you have come to this conclusion. Pretty sure Tata don’t operate with negative EBITDA and/or FCFs.
Doesnt matter if the company has positive EBITDA and FCF, it is still possible to derive a negative equity value via a DCF if the EV (PV of projected UFCFs) you derive is less than the current net debt
Tata Motos has an EBITDA of 485.4 million INR according to CapIQ
Genuine question, and don't take offence because I'm also of Indian descent - why do Indians write random words in all caps as if you're shouting in the middle of a sentence? I.e. "TATA", "INDIA", etc.
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