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This is a ridiculously misleading post, cannot believe its on the front page. The NYT is worth approximately $1.5B. It's market cap is $928MM, its debt is $773M

This is a ridiculously misleading post, cannot believe its on the front page. The NYT is worth approximately $1.5B. It's market cap is $928MM, its debt is $773MM and cash is $175MM. Enterprise value = Debt + Equity - Cash, so that puts it around $1.5B.

turar 15y ago
Market cap is a commonly used method to measure the company's worth, as determined by the market. If everyone agreed that NYT was in fact worth 1.5B, its market cap would have been 1.5B. Also, there are many companies that have negative EV based on that formula, yet are still functioning businesses.
- damoncali 15y ago
  That is totally incorrect. Market cap is the value of the equity, not the business.
  - turar 15y ago
    Totally incorrect? The value of the equity is simply "assets minus liabilities", a.k.a book value, which can be completely different from the market cap in dollar terms. And thanks for the downvote.
    - damoncali 15y ago
      Yes - totally incorrect. You are mixing up multiple concepts here. Book value is just that - what the accountants come up with for the books. The value of debt is how much the debt is worth. The value of the equity is how much the equity is worth (that is, the market cap). None of those are equivalent to the value of the company. Suppose I pay $60k in cash and take out a $240k mortgage to buy a house. The $60k is equity (market cap), and the $240k is debt. The value of the home is $300k. It works the same way with companies.
      - turar 15y ago
        So you paid $300K for the house, effectively establishing the last trade value, i.e. the market cap, a.k.a. what "market is willing to pay for the property", at $300K. Not $60K.
        damoncali 15y ago
        You're still tripping up. Forget about houses. Say I buy 100% of the stock in a business for $60k. The business then borrows $240k. When profit comes in, some of it goes to the bank who owns the debt (giving the debt value), and some of it goes to me - the owner of the equity (giving the equity value). So both debt and equity are valuable - they are claims on the business's cash flows. Now suppose someone wants to buy the business. I still have $60k worth of equity (100%). Do you think they can buy the entire business (claims on ALL of it's cash flow) for $60k? Of course not. They'd have to pay off the debt AND buy the equity. That number is $300k - the enterprise value. Market cap is defined as the value of the outstanding equity (share price x number of shares). Period. The value of the company can be, and often is, much greater because most companies choose debt as part of their capital structure. Startup tech companies like Instagram rarely do that. Nobody lends us money, so we're stuck with equity. So for Instagram, Market Cap (if there is such a beast for private companies) IS the enterprise value. For the NY Times, market cap is but a percentage of the enterprise value. So it turns out the headline of this article is actually quite incorrect. The NY Times, in any way you can measure, is clearly worth more than $1B.
        turar 15y ago
        Look, I totally get the debt part of the valuation, and what enterprise value is. I also completely understand that enterprise value is an important measure of valuation. All I'm saying is that using market cap to indicate the value of the company is not that misleading either. Enterprise value is just one way to value a business, there are others. It's not precise science. So in your latest example, and also throughout the thread, you're confusing (or using interchangeably) the concrete sale price and a fuzzy intrinsic value. Why would the buyer of your business pay $300K upfront? All other things being equal, the sale price of the business would still be $60k, and they can be paying off debt for the next 15 years for all I know. The conventional media-reported value of the business would still be $60K, and it won't be very misleading. In addition, not all debt is created equal. A company like Google can probably easily get, say 1B of super cheap debt on favorable terms, while something like Barnes & Noble would barely get the same 1B at much higher interest rates and repayment schedules. It's still 1B in enterprise value, but it's clearly not the same debt. You also mentioned cash flows. So to continue with your example, if your business is actually losing money hand over fist, and has negative cash flow on top of $240K of debt, what do you think its value would be? Would it be equal to your simple enterprise value formula? What if the same business is growing at 100% per quarter with super high operating margins? Enterprise value can be just as misleading.

turar 15y ago

Market cap is a commonly used method to measure the company's worth, as determined by the market. If everyone agreed that NYT was in fact worth 1.5B, its market cap would have been 1.5B. Also, there are many companies that have negative EV based on that formula, yet are still functioning businesses.

damoncali 15y ago
That is totally incorrect. Market cap is the value of the equity, not the business.
- turar 15y ago
  Totally incorrect? The value of the equity is simply "assets minus liabilities", a.k.a book value, which can be completely different from the market cap in dollar terms. And thanks for the downvote.
  - damoncali 15y ago
    Yes - totally incorrect. You are mixing up multiple concepts here. Book value is just that - what the accountants come up with for the books. The value of debt is how much the debt is worth. The value of the equity is how much the equity is worth (that is, the market cap). None of those are equivalent to the value of the company. Suppose I pay $60k in cash and take out a $240k mortgage to buy a house. The $60k is equity (market cap), and the $240k is debt. The value of the home is $300k. It works the same way with companies.
    - turar 15y ago
      So you paid $300K for the house, effectively establishing the last trade value, i.e. the market cap, a.k.a. what "market is willing to pay for the property", at $300K. Not $60K.
      - damoncali 15y ago
        You're still tripping up. Forget about houses. Say I buy 100% of the stock in a business for $60k. The business then borrows $240k. When profit comes in, some of it goes to the bank who owns the debt (giving the debt value), and some of it goes to me - the owner of the equity (giving the equity value). So both debt and equity are valuable - they are claims on the business's cash flows. Now suppose someone wants to buy the business. I still have $60k worth of equity (100%). Do you think they can buy the entire business (claims on ALL of it's cash flow) for $60k? Of course not. They'd have to pay off the debt AND buy the equity. That number is $300k - the enterprise value. Market cap is defined as the value of the outstanding equity (share price x number of shares). Period. The value of the company can be, and often is, much greater because most companies choose debt as part of their capital structure. Startup tech companies like Instagram rarely do that. Nobody lends us money, so we're stuck with equity. So for Instagram, Market Cap (if there is such a beast for private companies) IS the enterprise value. For the NY Times, market cap is but a percentage of the enterprise value. So it turns out the headline of this article is actually quite incorrect. The NY Times, in any way you can measure, is clearly worth more than $1B.
        turar 15y ago
        Look, I totally get the debt part of the valuation, and what enterprise value is. I also completely understand that enterprise value is an important measure of valuation. All I'm saying is that using market cap to indicate the value of the company is not that misleading either. Enterprise value is just one way to value a business, there are others. It's not precise science. So in your latest example, and also throughout the thread, you're confusing (or using interchangeably) the concrete sale price and a fuzzy intrinsic value. Why would the buyer of your business pay $300K upfront? All other things being equal, the sale price of the business would still be $60k, and they can be paying off debt for the next 15 years for all I know. The conventional media-reported value of the business would still be $60K, and it won't be very misleading. In addition, not all debt is created equal. A company like Google can probably easily get, say 1B of super cheap debt on favorable terms, while something like Barnes & Noble would barely get the same 1B at much higher interest rates and repayment schedules. It's still 1B in enterprise value, but it's clearly not the same debt. You also mentioned cash flows. So to continue with your example, if your business is actually losing money hand over fist, and has negative cash flow on top of $240K of debt, what do you think its value would be? Would it be equal to your simple enterprise value formula? What if the same business is growing at 100% per quarter with super high operating margins? Enterprise value can be just as misleading.