Why is cash implicit in equity value (especially given the concept of absolute priority)
Please do not bring up equity value + Debt - Cash here or TEV - Debt + Cash. Interview prep book answers / regurgitation really won't cut it.
I am looking specifically at equity value from a bottom up approach. Why do we see cash / share price as a floor on company value? Why is it that cash is implicitly considered part of equity value?
Cash might be available to equity holders to pay dividends but they are still subordinate in the capital structure to debt holders who will really get to keep that cash if the company goes under.
Do people really just look at cash without netting debt? Or are you misunderstanding?
I'm pretty such most discount debt when actually valuing a company... When considering this it makes sense as if everything else is worthless cash still holds it's value hence a bottom floor for a firms valuation.
This. Wouldn't you only use cash/share as a floor on a debt-free basis (netting it out)?
iunno if this is too basic for you, but the way that i've always learned it is the fact that the market/mr. market has already taken into account the company's cash levels.
Surely you should be considering net cash / share...?
Can you give us an example of where you think you've seen this done without netting debt? It should be pretty quick to work out numerically whether they are netting debt...
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