Valuation final step
Hi Guys,
I am confused as to why you would subtract net debt from Enterprise value to get to equity value. What does Enterprise value really mean as compared to Invested Capital? Also, in some references, only excess cash is subtracted instead of the entire cash amount from net debt.
I have been very confused on this topic for a long time. Any comments or answers are very very appreciated!
Thank you!
http://theaveragejoeinvestor.blogspot.com/2006/01/equity-value-vs-enter…
tl;dr: in DCF we have option to use unlevered FCF(interest inc/exp are not accounted for) or levered FCF (takes in account interest inc/exp). Using unlevered FCF leads to Enterprise Value.
Cash = Cash company must have to continue operating + excess cash. Logic is, part of cash is "untouchable."
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