Some companies trade so cheaply that their cash balance is worth more than the company's enterprise value (i.e. the sum of the market cap and total long term debts). This is known as a negative enterprise value (EV) and searching for such companies is a common bargain stock strategy. While, in theory, a negative EV may seem to be an easy arbitrage opportunity, whereby one could buy all of the debt and equity in a firm and use its cash balance to cover costs and keep the difference, there are a number of reasons to be cautious: Firstly, the enterprise value may not have captured all of the debt outstanding in the firm (e.g. the present value of lease commitments) and secondly the cash balance is from the balance sheet (rather than stated at the today's date used for the market cap). Given how quickly firms burn through cash, what you see on the balance sheet may not reflect what the firm has as of today as a cash balance so be careful! You can read more here. more »
Enterprise Value (EV) represents Market Capitalization plus Net Debt, and is a truer reflection of the actual size of a company than Market Cap. More specifically Net Debt includes Total Debt, Minority Interest and Preferred Stock minus Cash and Short Term Investments.
This Enterprise Value is based on the latest available figures for Debt & Cash, i.e. interim figures if these have been published since the annuals.
Stockopedia explains EV £m...
If EV < Market Cap, the company has net cash.
If EV > Market Cap, the company has net debt.
If EV < 0, there is more cash in the company than the value of the Mkt Cap and Debt combined! This signal is often appreciated by deep value investors.
Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. In contrast, the PE Ratio will be significantly more volatile in companies that are highly leveraged.
The Market Cap is a measure of a company's size - or specifically its total equity valuation. It is calculated by multiplying the current Share Price by the current number of Shares Outstanding. It is stated in Pounds Sterling.
Stockopedia explains Mkt Cap £m...
Market Capitalisation only takes into account the value of the company's shares (equity), it ignores the amount of debt a company may have taken on and therefore isn't the best indicator of the company's size. The Enterprise Value adds the net debt to the Market Cap and is a better indicator of the minimum amount that an acquiring company may have to pay to buy the firm outright.