Why are equity and enterprise values just an indentity relations
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Date: October 1st, 2012 2:01 PM Author: magical turdskin
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.
(http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#21691667)
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Date: February 19th, 2018 1:54 PM Author: Charismatic scourge upon the earth field
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
(http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#35437607) |
Date: February 19th, 2018 1:56 PM Author: Thriller Weed Whacker
Apples v Oranges
EV doesn’t describe how much a company is worth.
(http://www.autoadmit.com/thread.php?thread_id=2066446&forum_id=2#35437616) |
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