Enterprise & Equity Value
A net-cash company has a $2bn market cap, $100m of debt, and $600m of cash. What's its EV, and what does the result tell you?
Model answer
EV = 2,000 + 100 - 600 = $1,500m. Net debt is negative (100 - 600 = -$500m net cash), so EV ($1.5bn) is LESS than equity value ($2.0bn). This illustrates that for cash-rich companies EV < equity…
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