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Doesn't this just ignore Enterprise value? Ford has something around $160Bn in debt, so the real enterprise value of Ford is close to £200Bn. A hot new startup
by Traster 6y ago
Doesn't this just ignore Enterprise value? Ford has something around $160Bn in debt, so the real enterprise value of Ford is close to £200Bn. A hot new startup is probably still a little over-valued at 10% of Ford, but I don't think you're comparing like for like because Lucid doesn't have a huge amount of debt on its balance sheet (I don't think)
- piker 6y agoThis doesn't make any sense. These companies are valued at their market capitalization -- i.e., the number of outstanding shares multiplied by the price per share. Enterprise value is a metric, but it's not clear why you're proposing to take 10% of "that" (not sure you nailed EV, either) and compare it to the SPAC's market cap. The parent was talking about free cash flow, from which it is generally agreed market cap should be derived in an efficient market with perfect information.
- prepend 6y agoThe market is factoring in that debt. So if Ford magically cancelled out its $160B, its market value would rise significantly. So I guess one could compare its post-debt estimated value to this new startup as a upper bound since the startup doesn’t have that debt. But auto making requires lots of capital so avoiding debt will likely not be possible as the company grows. Although if they keep valuations they can just sell stock and avoid debt.
- piker 6y agoNo. The market only cares about Ford's debt in so much as (1) Fords debt service reduces free cash flow and (1) it threatens a potential bankruptcy that could wipe out equity in the worst case. Sure, cancelling the debt would eliminate the debt service and significantly increase Ford's free cash flow, its market cap should increase, but only if doing so was free.