When calculating EV why do we subtract out cash and cash = as well as short term investments? If it’s supposed to be company value aren’t those assets we should include? Is there anything else subtracted out?
Thanks
Think of it as the total cost for someone to buy the company => Outflow - Inflow
He needs to buy back all the stock and debt, and eventually the minority interest of other people in that company, but he will receive the cash and equivalents that the target enterprise has in its pockets, thus :
EV = Market value (Common stock) + Market value (Preffered stock) + Market value (Debt) + Minority interest - Cash and investments.