Market Value of Equity and Cash on Hand
Question: Has there ever been a case where market value of equity (Market Cap) has dropped below a company’s cash on hand, or if this is even possible.
For example, if I had a company that has $100M in cash, $0 Debt, and BV of equity at $100M. Let’s say that a company is in Pharma, and was unable to have its drug licensed by regulators. Therefore, there is no future revenue stream unless something changes. Of course, market reaction would be negative to this news, and MV of equity will drop. Does the $100M act as floor for the equity value?
Logically, it makes sense that this would be the case. Otherwise, wouldn’t an acquirer buy the company for less than $100M, and instantly get $100M in cash?
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