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I was wondering regarding the calculations of the value of a company. In the models, we take the present value of the CF and the terminal value of the CF. For example the free cash flow to the equity method.
Why would you ignore the current value of cash on hand and the fixed assets? What if the company has valuable land or buildings that could be sold.
thank you
FredrikThe asset value of the business is only relevant if it was higher than the present value of future earnings – in that case it would be better to sell the business on a ‘break-up’ basis. Normally the future cash flows will be higher than the asset value.
Ok thank you.
My thought was just that if you want to put a value of the company you have all the benefits of the future earnings, but you could also sell for example the piece of land the company has in its non-current assets. So if you want to put a value of a company you have
* PV of future cash-flows
* Net-current assets (Working capital)
* Non-current assetsOr is the theory that if you sell the non-current assets, you would not benefit from the future cash flows?
thank you for the clarification
FredrikYes – if they sold the land (or any non-current assets) then they would not get the future cash flows 🙂
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