I also wouldn’t look at it as Right side (debt + equity) of the balance sheet for Left side (assets) because if you subtract out cash/marketable securities then right side no longer equals left side.
I think the distinction and summary is this (CPK/others please confirm):
1.) EV is essentially the “effective” value to acquire the on-going operations of a business. I say “effective” bc (using the car example above) you would still pay the asking price of $1,000 but once you own/pay for the car, you’re net cash position is -$900. So you “effectively” paid $900. You don’t pay the EV of $900, which is effectively equal to $800 after purchase…doesn’t make sense. You don’t pay the EV.
2.) To CPK’s last point. If you’re selling, you either distribute the cash pre-sale (take $100 out of glove compt) or ask for $1,100. If you ask for and get $1,000, then the buyer could step in, pocket the $100 and sell the car immediately for the same $1,000 price for a profit of $100.
Cash is the last stop at the negotiating table, so some of this is moot and gets thrown around when determing the final purchase price. Depends on working capital needs, history of reinvesting the cash, alternative investment environement, etc. But as a seller, I wouldn’t let ANY extra cash just line the buyer’s pocket. You either add it to the purchase price or don’t and let me take it on the way out. Apple’s stock price most certainly includes the value of its FAT cash pile, therefore you are paying for that cash when you buy a share in apple.
CPK (others), is this accurate?