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>Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise v

by treis 5y ago

>Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B. I believe that's a bit misleading because it includes Ford's lending arm. They borrow money and lend it out at higher rates. So lots of Ford debt is lent back out to consumers at profit.

cl0ckt0wer 5y ago
I thought money that was owed to you was counted as an asset, not a debt?
- thaumasiotes 5y ago
  If I borrow $300,000 at 2% interest and lend it to you at 5% interest, I have an asset based on my loan to you and a liability based on my debt to whoever loaned me the same amount. They don't net out -- if you default, my asset will disappear without taking the liability with it. But it might be strange to say that I'm worth $300,000 based on my debt, when the whole concept of that debt is that it's theoretically guaranteed by, and related to, that asset. This combined situation does not suggest that I'm personally worth $300,000; I'm earning the difference in interest, and my debt to my creditor is based mostly off of your net worth, not my net worth.
civilian 5y ago
Wouldn't Ford then have assets, to cancel out of the debt? I imagine that "120B in debt" means net debt, but I'm not sure. [follow-up] yes, that's $120B net debt. They have a total $160B of debt, and ~$23B of that is from the automotive side of the business, not the financing side. https://stockdividendscreener.com/auto-manufacturers/ford-total-debt-and-leverage-ratio-analysis/ https://stockdividendscreener.com/auto-manufacturers/ford-to...
- treis 5y ago
  They do, but the GP was talking about the enterprise value. Kind of like taking the value of your home and subtracting the mortgage to get your equity. They're doing the reverse and adding equity + Deb to get the total value of the enterprise. That works if the debt is for things like building factories or designing cars. But when's it's borrowed and then lent straight out it doesn't make sense.

by treis 5y ago

cl0ckt0wer 5y ago

I thought money that was owed to you was counted as an asset, not a debt?

thaumasiotes 5y ago
If I borrow $300,000 at 2% interest and lend it to you at 5% interest, I have an asset based on my loan to you and a liability based on my debt to whoever loaned me the same amount. They don't net out -- if you default, my asset will disappear without taking the liability with it. But it might be strange to say that I'm worth $300,000 based on my debt, when the whole concept of that debt is that it's theoretically guaranteed by, and related to, that asset. This combined situation does not suggest that I'm personally worth $300,000; I'm earning the difference in interest, and my debt to my creditor is based mostly off of your net worth, not my net worth.

civilian 5y ago

Wouldn't Ford then have assets, to cancel out of the debt? I imagine that "120B in debt" means net debt, but I'm not sure. [follow-up] yes, that's $120B net debt. They have a total $160B of debt, and ~$23B of that is from the automotive side of the business, not the financing side. https://stockdividendscreener.com/auto-manufacturers/ford-total-debt-and-leverage-ratio-analysis/ https://stockdividendscreener.com/auto-manufacturers/ford-to...

treis 5y ago
They do, but the GP was talking about the enterprise value. Kind of like taking the value of your home and subtracting the mortgage to get your equity. They're doing the reverse and adding equity + Deb to get the total value of the enterprise. That works if the debt is for things like building factories or designing cars. But when's it's borrowed and then lent straight out it doesn't make sense.