If you are running a WACC and you need to weight your equtiy and it is negative and the debt is better than to 2 times the assets, do you have anythought on what to do or use for you weights? Also on a related topic… Debt/equity ratio looks way out of wack. So computing an ROE analysis seems incorect. ANY THOUGHTS WOULD BE APPRICIATED. I AM HITTING A BRICK WALL HERE. THANKS
Academics will recommend using market value of equity, not book. So the value can’t be less than 0.
What in the world would you be doing with the wacc for a company with debt = 2*assets and negative equity? This is a company that is not doing especially well (I suppose), but it requires different tools than these.
A couple of things… If I use the market value of equity and the book value of debt should I just use the combinded total of the two as my capital base for the equity weight and the debt weight? Seems like a good method. As for the amount of leverage. It is a recent IPO… and a large portion of the IPO funds were used to pay off the venture capital, thus creating a large distribution in excess of add’l paid in capital. Even w/out this equity deduction the company is a bit leveraged but also still a growth company
Ideally you use market value of both. For healthy firms MV of debt is well proxied by BV.
thanks, will give it a go
nope nasdaq trading in $22 range