EV and EQV

Question 1

What does EV and EQV represent?

Answer 1

EV is the value of a business’ core operations to all shareholders. EQV is the value of a company’s assets to equity investors

Question 2

How do we get from EQV to EV?

Answer 2

Add debt, preferred stock, and NCI, subtract cash.
Excess cash is a noncore asset

Question 3

What is NCI? What is an Equity Investment?

Answer 3

when more than 50% but less than 100% of another company, erge balance sheets. NCI is the portion that you DON’T own.
They represent a part of what all our investors own.

Equity investment: more than 20%, less than 50%.
We subtract it when going from EQV to EV because the other biz is not a core asset

Question 4

Can a company’s EQV be higher than EV?

Answer 4

Yes, when the value of its noncore assets exceed the value of liability and value to other investor groups

Typically very cash flow positive firms with positive net debt, e.g. Apple

Question 5

Can EQV be negative? What about EV?

Answer 5

EQV can never be negative, only 0
EV can be negative if its excess cash exceeds EV + debts

Question 6

A company has a share price of $20 and 100 shares outstanding. It has $500 in cash, $1000 in debt, and $200 in NCI, what are EQV and EV?

Answer 6

EQV = 2000 = market cap
EV = 2000 + 1000 + 200 - 500 = 2700

Question 7

If a company spends cash to buy inventory, how does EV and EQV change?

Answer 7

EQV unchanged because market cap unchanged

EV increases because cash has been converted to a core asset

Question 8

A company issues $100 in shares, what happens to EQV and EV?

Answer 8

EQV + 100
EV no change because EQV is higher, but cash has also increased by 100

Question 9

A company repurchases $100 in shares, what happens to EV and EQV?

Answer 9

EQV decreases 100
EV no change, because EQV decreased, cash decreased

Question 10

A company issues $100 in debt, what happens to EQV and EV?

Answer 10

EQV doesn’t change because equity investors gain nothing
EV doesn’t change because debt +100 and cash +100

Question 11

A company repays $100 in debt, what happens to EQV and EV?

Answer 11

EQV no change
EV no change, because debt -100 cash -100

Question 12

A company issues $100 of cash dividend, what happens to EV and EQV?

Answer 12

EQV decreases by 100 because divs are drawn from RE.
EV no change, because EQV -100 and cash -100