When looking at Enterprise Value in a market approach, it gives you sort of the "bare bones" total firm value. It doesn't include any cash because you'd basically be paying cash for cash.
But in an income approach model you model cash as a component of current assets. As a company grows in size, it needs more and more cash to perform its operations. Therefore the contribution to the cash account each year in a growing company is a "use" of funds. So themodel would NOT yield an enterprise value, and instead it would yield Enterprise Value + operating cash..so would it be MORE accurate to say that the DCF approach gives us Enterprise value + operating cash?
Investment Banking Interview Course
- 7,548 questions across 469 investment banks. Crowdsourced from over 500,000 members.
- Technical, behavioral, networking, case videos, templates. All included.
- Most comprehensive IB interview course in the world.