I need a little guidance here. I am valuing a Japanese robotics manufacturer. I have no trouble forecasting operating free cash flow to firm, calculating terminal value, discounting, and getting the intrinsic enterprise value today. That part is done. Below is what puzzles me.
That company is a cash hoarder, with no debt on the balance sheet. In fact, they are sitting on a large portfolio of investment securities. So here is a question: do I need to value those securities separately and add them to the enterprise value I calculated above?
The reason I am hesitant is that EV reflects the value of NET operating assets or (conversely) NET financial claims (equity and debt holders) on those assets. Technically, that portfolio of investment securities is subtracted from financial liabilities to arrive at net financial claims. Hence, any EV I calculate in the first paragraph above should already include that.
Can anyone please guide and critique me on that. Will appreciate any input from you guys.
Like you said they're cash and cash equivalents so I would refrain from including them in any EV calculations. Where it should come up is backing into a per-share price (EV -> Equity value). And you'll see it reflected by a boosted price per share
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