Another View on Enterprise Value

Core assets are used to generate profit for the business; non-core assets are things owned by the business but not central to its money-generating operations.

• Core Assets: assets critical to the operating business, such as Inventory, Fixed Assets, Accounts Receivable, etc.

• Non-Core Assets: assets not critical to the operating business such as Derivatives, Currencies, Real Estate, Commodities, Stock Options, etc.

In this sense, Cash on the Balance Sheet usually (at least for the most part) is non-core. Unless it’s cash that the business needs to operate (such as dollar bills in the registers at a retail operations), it is not being used to generate profit in the business operations.

That’s why it is stripped out in EV calculations. (Other non-core assets may be as well, especially if they can be sold off for cash without harming the operations of the business. For example, Real Estate and Commodities can often be sold without impacting the Company’s cash-generating operations.)

Marketable Securities, are simply ways of attempting to earn profit on that Cash, but are not core to the company’s operations. These Cash-like assets can also be sold off, and should be stripped out of the Net Debt Calculation

• (+) Short-Term Debt: Debt with less than one year maturity.

• (+) Long-Term Debt: Debt with more than one year maturity.

• (+) Debt Equivalents: Operating Leases and Pension Shortfalls.

• (–) Cash and Cash Equivalents: Cash, Money Market Securities, and Investment Securities