I am in 2nd year of uni (pls don't judge me) and I have a question related to EV.
In the EV calculation, you Include (+) debt and exclude (-) cash.
However, why is debt inflating the EV in the calculation?
Common sense would tell me to subtract debt and add cash, which is the opposite of the traditional calculation.
Example, assuming that all the unknown mention assumptions are equal
Company A: EBITDA OF 3M, Sector Multiple 5x, Cash 2m, Debt 10M
EV= 15m-2m+10m= 23m
Company B: EBITDA OF 3M, Sector Multiple 5x, Cash 5m, Debt 2M
EV= 15m-5m+2m= 12m
Why should company B worth less than company A. In a value perspective company B should worth more.
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