Series 79 practice questionmediumEnterprise Value vs Equity Value
When calculating enterprise value, which adjustment should be made to equity value?
- AAdd accounts receivable
- BAdd total debt and subtract cash and cash equivalents✓ Correct answer
- CSubtract operating leases only
- DAdd depreciation and amortization
Explanation
Why B — Add total debt and subtract cash and cash equivalents
Enterprise value equals equity value plus total debt, preferred stock, and minority interest, minus cash and cash equivalents. Failing to net cash overstates the company's true cost to acquire.
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