Enterprise value = equity + debt - cash
why would the value of your business include debt? how is EV different from stakeholders equity and why is it different? why is cash not included? why use this metric instead of market cap or the equity you have?
| +267 | Looking to raise a Billion Dollar Fund - College Junior | 41 | 2h | |
| +215 | It doesn’t need to be this way | 30 | 8m | |
| +134 | Career Bankers, Was It Worth It? | 45 | 12m | |
| +133 | Biggest gripe in IB: people with no balls | 37 | 2h | |
| +124 | What to expect during your IB summer internship and how to secure the full-time offer | 6 | 4h | |
| +83 | RBC M&A vs PJT RSSG | 14 | 1d | |
| +78 | I FINALLY DID IT, I GOT A FT OFFER! | 14 | 4h | |
| +66 | Vanderbilt ($$$) / Northwestern ($$$) vs UF ($) | 36 | 6m | |
| +63 | Did I mess up by correcting my VP Publicly? | 20 | 1d | |
| +51 | Feeling really lost in IB | 15 | 21h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Imagine if you tried to value a house based solely on the owner's equity position - that is what it would be like to value a company based solely on market cap. Take a house farm where all the homes are essentially identical. Were you you to value homes based on the size of the equity stake, you'd have different values for each home (based on who has the smaller mortgage) despite all the homes being essentially the same. While it is true that you could effectively control a company (or home) by owning all the equity, the bank(s) would still control some of the company (or home) since their debt has a claim on the asset.
Regarding the question about cash: if there was a big box of money in the house you were buying, you'd have to pay for that box of money, but then you'd get the box of money in return. You subtract cash from the EV since the money spent on purchasing the box of cash is returned to you (in the form of a box of cash).
Ipsam est et esse animi architecto. Quae et unde tempore id ducimus unde veniam. Quas perferendis mollitia esse corporis omnis nihil repellat. Incidunt qui suscipit tempore facere dolorem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...