so lets say you are valuating a firm in making a decision to go ipo or not. The firm has $5mil of cash and it is planning to raise $80mil in ipo and has an Enterprise Value of $300mil. As you know, to calculate equity value, you have to add current cash & equivalents and subtract debt (assume there's no non-controlling interest or preferred stock). Do you add/subtract/do nothing to the $300mil Enterprise Value with the $80mil it is raising to get Equity Value (then divide Equity Value with fully diluted shares outstanding to get share price)? Thank you for your help!
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The enterprise value will not change with the $80m from the IPO issuance. One main benefit of the enterprise value metric is that it is independent of cap structure.
Enterprise Value = Equity Value + Debt - Cash (ignoring other items)
If you issue $80m of stock, equity value goes up by $80m and cash goes up by $80 (balances out so Enterprise Value stays at $300).
If you issue shares, equity value will increase, but so will the number of shares outstanding (directly proportional in theory, although not always in practice), so the fair price per share will stay the same (again, in theory).
Hope this helps.
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