Could the ENTERPRISE VALUE be LOWER than the EQUITY VALUE?
- Sep 23, 2022
- 1 min read
✦ ENTERPRISE VALUE or FIRM VALUE comprises both the EQUITY VALUE (or MARKET CAPITALIZATION, which is = total shares * share price) and the NET DEBT (Short and Long Debt – Cash)
✦ NET DEBT is considered in the computation because if the firm were to be acquired, that Net Debt would increase the price or cost to acquire it
✦ If the company has zero debt or more cash than debt, that inevitably leads to an ENTERPRISE VALUE that is lower than the EQUITY VALUE
