is enterprise value 0, if equity is 100, and cash is 100?
I had an interview and the interviewer said the answer was something about "net debt."
The question was this: if the company has equity of 100, and cash of 100, its enterprise value would be 0 then?
I said no...intuitively...
but could not elaborate it anymore..
Then the interviewer said you have to consider "net debt".
I knew Net Debt was Debt-Cash but could not see why enterprise value is not 0...
Did she mean there would be some debt? that's why the enterprise value would not be zero?
but.. then she should've told me there was debt... tho.. but the givens were just equity and cash..only...
Could anyone please elaborate it more?..
Ha.. feel so dumb...
Anyway, thanks in advance :,)
Assuming the Company has no other positions on its balance sheet other than 100 in cash and 100 in equity, then the company has negative net debt (net cash) of 100. The enterprise value refers to the value of the operations of the Company. Assuming that the cash is not operationally necessary (i.e. till / register cash in a retail business), which should not be the case here, then the cash doesn't factor into the enterprise value. Since this Company appears to do nothing but hold cash, as an enterprise it is worthless. The equity value would be 100 (you pay 100 for a company that has nothing other than 100 in cash) and the enterprise value would just be the equity value + net debt (or - net cash) of -100 (100), so 0.
Hope that helps.
Thank you so much! Just want to clarify, so you are saying the enterprise value is 0, right?
SO simply if there is a cash 100, and equity 100, and debt 0, then the company's enterprise value is 0? IT seems ... to be too simple.. feel like there must be something else hahaha...
could be that the interviewer was looking for you say something along the lines that the enterprise value would be equal to the amount debt the company has, since the value of equity and cash would cancel each other.
But I agree, it was rather weirdly phrased since no value of debt was given
Yes, it is 0. I would preface that by saying something along the lines of "Assuming that the cash and equity positions are all that's on the B/S sheet..." (unless it doesn't balance). As stated before, the company does nothing but hold cash, which doesn't factor into the EV as it isn't operational.
If you had founded a Montana LLC to buy a supercar and then sold the car, what would the LLC be worth?
Tempore quibusdam iusto amet ut. Veritatis eaque voluptatem occaecati. Iure doloribus id cumque ipsam perspiciatis dolorem dolores. Animi sed earum alias aut iste rem.
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...