Equity Value and Enterprise Value

EV = EqV + MV of Debt - Cash - Cash equivalents - Short-term investments

Right? However, in a few questions, I have seen that EV = EqV + Debt ; i.e. we do not account for cash. How come?

Reference: Equity Topical Assessment Yee Question 3.


I think what you see in Yee question 3 is Firm value = EqV + Debt and cash is already included in the EqV but for Enterprise value you have to subtract cash otherwise you are double counting it. Think of EV as the price you are willing to pay for the firm.

I think you are mixing between 2 valuation methods. Altough the concept might seem close :

  1. EV gives the value of the company from the B/S point of view (current)

  2. FCFF/FCFE discounted gives the value of the company from a current and future (potential) point of vue.

So when we value EV from the FCFF method, cash has already been taken into account. Alright, thx!

One more question: for Enterprise Value, MV of debts refers to long-term debts only?

^ Short term debt is icluded too (ex. notes payable).

^ how about account payable? I was working on Equity topical assessments and in the case Metev (Q4) they included only long term debts when calculating MV of debts. They did exclude note payables (as you have pointed out) and account payable.


Accounts payable are not included. Generally speaking you should include all financial liabilities and not to include all operating liabilities. In real world I would include note payables but CFAI does not. I wouldn’t include bank overdraft thought because I accept it as operating facility.

Are you sure Notes payable aren’t to be included? It doesn’t make any sense to me…

They did not include it in that Metev assessment, true.

^ I am doubting about note payable too because we don’t count note payable and the current long term debt when calculating NWC. That means these items are financing item rather than operating items, right?

Thanks Gebura !

I judge according to the Metev assessment too. As I said for me they should be included, no idea why CFAI does not. I searched for similar example in CFAI curriculum or Elan notes but I couldn’t find.

Let’s hope they won’t include notes payable in that type of calculation during the exam then.

I wonder if CFAI trawl this website looking for these kind of issues just so they can troll us in the exam on Saturday haha

^too late. Exam papers were already printed :)) Oh, I am wondering if there has ever been kind of exam errata???

How nice it would be if cfai was to accidentally email me (and only me) the entire question paper. Oh maaaaaaaaaaaaaaaan! First guy ever to score a 100…ohhhh maaaaaaan! what a dream