Why is Enterprise Value Market cap - Cash + Debt?
Hey, everyone.
I am learning about trading comps and I was curious why Enterprise Value is calculated as Market cap - Cash + Debt? Why do we subtract the cash and add the debt instead of vice versa? It seems that if we want to see the value of a company, we should subtract the debt and add the cash the company has.
Because you are valuing the company's core operations. Both creditors and shareholders have a claim on it. The market cap covers just the equity value so you add debt, but you subtract cash because once you buy the company you can use the cash to pay down the debt, theoretically. Think of it as valuing the assets (left side of the BS) by using the right side of BS.
Don't forget to add preferred stock and non-controlling minority interest in there too.
Ea non est et. Illum quisquam explicabo fugit laboriosam temporibus error. Ipsum sit adipisci eos vel dolores dolor qui explicabo.
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...