I side on yes, but not 100% convinced because the question becomes what are those LT investments? Because if cannot efficiently liqudate that value cannot be taken at face value on BS right?
Whats your opinion on this?
Grazie
No one said anything about liquidation value.
You also did not state the nature of the LT investments. Are they in progress? Are they fixed implemented investments?
^Thats exactly my point. Can we subtract LT investments if we don’t know what they are? Most companies don’t detail this stuff out.
Why would you in the first place?
Second of all, what type of LT investments do you have in mind? There are usually no off-balance sheet items for such.
You would need to know what the assets are, no matter if they are short/long term if they are needed for operations you keep them in, if they are non-operating you subtract.
also just because the BS value may not be great it doesn’t mean you just ignore it, make the best estimate you can of value
There are two definitions of EV.
The usual textbook takeover EV, and TEV, you need to make a distinction too.
There is no reason to subtract anything operating for the first definition.
OP, is there a company you are trying to figure this out for? If so what is it(assuming it’s public)?
if this is a general question then it’s probably too vague
Also what is the difference between takeover and total enterprise value? I don’t think I’ve ever seen that.
It’s the fair value of the entire balance sheet.
So total paid, including non operating (no subtracting cash)?
Basically equity plus debt (but not subtracting cash?)
Not really.
TEV = EV + cash + NOA
Or
TEV = MVE + MVD + NOL
Or
TEV = OA - OL + NOA
Put into words, it’s the market value of all on balance sheet items on the investment (current assets netted), or financing side.
Im referring to AAPL. And I realized they actually do list what they have (Mostly Corporate bonds and US Treasuries, but others as well)
Mr. Smart. So if we have a U.S. Treasury we know it is relatively liquid. So if we bought company XYZ and it has Treasuries we know we can liquidate these and pocket the money similiar to cash right? But some discount of course for trading fees. What about MBS, corporate bonds, etc. Whats your opinion on this?
Also, they register there LT investments at fair value. Thanks.
Are you doing this for valuation purposes? How are you valuing the company?
Yes, that is, if you are only interested in the core business. If they are not highly liquid, then you would try to approximate their market value, either using secondary market prices, or an appropriate discount for liquidity.
Smart, I can’t say I’ve ever seen TEV defined that way, typically when I see it they are taking out cash (and other non-operating but just saying cash for simplification) and basically just using TEV as a style choice vs EV or spelling out enterprise value. I usually see that as something like total market value, but I suppose total enterprise value vs just enterprise value makes sense too (a rose by any other name kinda thing).
Buffett, agree with smart, absolutely subtract those.
I believe I first saw the term used in McKinsey’s Valuation.
It’s also the term you should be using if trying to solve for the fair value of equity.
Ok thats what I was leaning towards. Thanks for the help guys.
EV would not typically consider LT investments, as the latter is not part of the core operations being valued by EV. As such, there is no reason to deduct it from EV. However, when deriving Equity Value from EV, the analyst would have to add Net Debt and the LT Investments.