One way to calculate equity value for a firm is discount back forecasted FCFFs, adjusting each FCFF for Interest(1-t) and Net Borrowing (to get FCFE).
Another way is to calculate an EV/EBITDA multiple from a basket of comparable companies and apply it EBITDA. This gives you an Enterprise Value, from which you can subtract net debt from (or just add cash if the company is debt-free/sitting on cash) to get your equity value.
From my understanding, the first method always results in an equity value that is lower than or equal to enterprise value, as it does not account for cash on the balance sheet. Is my understanding correct?
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