NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
A company has 10 crore shares outstanding at a market price of Rs 250 per share. It has total debt of Rs 600 crore and cash and equivalents of Rs 350 crore. What is its enterprise value?
Enterprise value is Rs 2,750 crore. Market capitalisation is Rs 2,500 crore, to which debt of Rs 600 crore is added and cash of Rs 350 crore is subtracted, since EV equals market cap plus net debt.
- ARs 2,500 crore
- BRs 2,750 croreCorrect
- CRs 3,450 crore
- DRs 2,250 crore
Explanation
Market capitalisation = 10 crore x 250 = Rs 2,500 crore. Enterprise value = market cap + debt - cash = 2,500 + 600 - 350 = Rs 2,750 crore. Rs 3,450 crore adds cash instead of subtracting it, and Rs 2,250 subtracts debt and adds cash wrongly. Rs 2,500 ignores net debt.
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