Accounts Receivables/Payables and Enterprise Value
This is a dumb question (just getting started w/ finance)... but can someone explain how an increase in accounts receivables or accounts payables would change enterprise or equity value?
This is a dumb question (just getting started w/ finance)... but can someone explain how an increase in accounts receivables or accounts payables would change enterprise or equity value?
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My understanding is that a change in AR/AP doesn't directly lead to a change in Equity value or Enterprise value. Equity value in its most basic form is stock price per share * # of stocks outstanding, and Enterprise Value = Equity value + Debt - Cash + Preferred stock + Minority interest. I don't see AR/AP being reflected here anywhere.
However, changes in AR/AP might indirectly lead to changes in the stock price of a company, causing Equity value and therefore Enterprise value to change. If AR rises rapidly in a period for a company, investors might not like to see this increase in working capital, and this could cause the stock price of the company to fall, causing a decrease in Equity value and Enterprise value.
Not sure if that makes entire sense, but that's my two cents.
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