01 January 2011
Under DCF approach (assuming FCFF), the value arrived is the enterprise value and it tells us the amount of cash that I need to buy the company today; hence any cash that is already there in the books of the intended target company should ideally be excluded from the enterprise value as we would need only the net amount to pacify the claim of everyone. Having said that, I believe that in your query, you should not be adding the 5$ cash to arrive at the final equity valuation. I am of the opinion that the similar concept applies for the relative valuation approach as well and hence existing cash balance should not form part of the valuation per se since this has nothing to do with the actual worth of the company.
CAclubindia
