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Why are equity and enterprise values just an indentity relations
| odious onyx nowag immigrant | 10/01/12 |
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| odious onyx nowag immigrant | 10/01/12 |
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| Flickering dilemma | 02/19/18 |
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Date: October 1st, 2012 1:51 PM Author: odious onyx nowag immigrant wouldn't real equity value of a company with no debt be higher than a company with the same nominal equity value but leveraged like 99 to 1? (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691612) |
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Date: October 1st, 2012 1:53 PM Author: thriller twisted sandwich parlor what do you mean by same nominal equity value? (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691619) |
Date: October 1st, 2012 1:52 PM Author: seedy pink casino tattoo Your question doesn't really make sense. Adding debt decreases equity value. (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691616) |
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Date: October 1st, 2012 1:53 PM Author: Wine exciting rigpig lol (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691624) |
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Date: October 1st, 2012 1:54 PM Author: Obsidian trip area can you give a numeric example (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691627) |
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Date: October 1st, 2012 2:01 PM Author: odious onyx nowag immigrant Company A has enterprise value of $100 and no debt, so it's equity value is $100.
Company B has enterprise value of $10,000 and $9,900 of debt, so its equity value is also $100.
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Date: February 19th, 2018 1:54 PM Author: gay pungent hall fanboi lmao. Enterprise value = market value of equity + debt + other claims on cash flows (eg, excess pension liabilities, capital leases) - cash - non-operating assets. the point is to estimate the value of a company’s operating assets *regardless of capital structure*
if Company A has an enterprise value of $100 AND we assume (1) it has no cash/non operating assets AND (2) it has no debt, fine the market value of equity can equal $100 (but i’m 100% this thought process didn’t occur to you)
same deal with company B - you’re starting with the enterprise value without saying anything about the company’s assets
in reality though, once a company is over leveraged, its cost of capital will spike exponentially and its share price and cost of debt will tank and spike, respectively (thereby both the enterprise value, which is supposed to be capital structure neutral, as well as the market value).
found this because i searched for enterprise value on XOXO to find something lolzy. was not disappointed. ask me other finance questions if you like |
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Date: October 1st, 2012 2:03 PM Author: haunting new version what (http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691686) |
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Date: February 19th, 2018 1:56 PM Author: Flickering dilemma Apples v Oranges
EV doesn’t describe how much a company is worth. |
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Date: February 19th, 2018 1:59 PM Author: gay pungent hall fanboi it does. in fact it’s a better way of looking at value since it’s not affected by what you do with the right side of the balance sheet (eg raising or paying off debt, buying back stock)
equity value says how much the company’s assets are worth to equity holders. enterprise value says how much the company’s operating assets are worth to all claims on those assets. agree apples and oranges |