How does debt free cash free valuation compare to shares or equity value? Let’s imagine a company that has shares/ equity with a valuation of 70 million. You can see that 70 million on the right hand side of the chart below. Let’s imagine that same company had debt less cash (= net debt) of 30 million. The debt free cash free valuation would be 100 million. That’s the value on the left hand side.
Equity valuation vs. DFCF
Equity valuations are usually higher than DFCF values
For a company that has net debt (that is, where debt is greater than cash) the debt free cash free value is higher than the shares/ equity valuation for the business. You can see that in the chart above: the 100 million on the left is higher than the 70 million on the right. Working from left to right, if the owner of a company had received a debt free cash free offer of 100 million, and if net debt was 30 million, the owner would expect to receive 70 million for the shares/ equity in the business.
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