Understanding Financial Statements: Cash, Debt, and Enterprise Value

The main subject is "investing essentials."
The main takeaway is understanding the significance of market cap, cash, debt, and enterprise value in investing.

### Understanding Enterprise Value (EV) in Investing
* 💰 When evaluating a stock, key factors to consider are **price per share (PPS)**, **shares outstanding**, and **market capitalization (market cap)**.
* 💵 "Cash is **how much cash** the company has. Debt is **how much debt** the company has."
* 📈 Market cap is the **total value of a company's outstanding shares**.
* 💸 Cash includes **cash in bank accounts, marketable securities, and cash-like investments**.
* 🏦 Debt is the **money a company owes**.
* 💼 Enterprise Value (EV) is calculated as **market cap minus cash plus debt**, adjusting the market cap for **net cash**.
* 🧠 EV is important because it represents the **value of a business after accounting for cash and debt**.

um anyway, that's sort of how I look at the first six things. I look at when I look at um when I look at a stock. Is the price per share. Some people abbreviate this as PPS or just P. The number of shares outstanding. The market cap. Then I look at these last three things: cash, debt, and Enterprise Value. What the heck is that? Well, cash and debt are pretty easy. Cash is how much cash the company has. Debt is how much debt the company has. That's pretty simple, right? Uh, let's let's look that up. How much cash? How much cash does Coca-Cola have? Well, this is going to get a little harder because we really have to delve into these 10ks and 10 Q's. So we remember the stock ticker of Coca-Cola is KO. And we see here a 10K. We have to sort of in our mind ignore all these other filings until we see this one: the 10 Q. 10K. 10 Q. Another 10 Q. Another 10 Q. And then last year's 10K.

last year's 10K. So they come out periodically. That makes sense. So this 10K just came out. And look at, look what it says here. Period of report. This is for the year 2015. So this is the 2015 results. And the date that they filed it was a few days ago. So companies don't report their 2015 results on January 1st. They may know them internally on January 1st, but they release them to the public a few months later. And so you can read this document. It is a huge document, hundreds of pages, uh, 170 pages. And if you're a real serious investor, you print this out and you read it page after page. That makes sense. But what are we looking for? We want to know how much cash they have. Where do we find that information? Well, it's on one of the financial statements known as the balance sheet, the balance sheet. And the balance sheet is one of three key financial statements. And it's the one we're going to look at most closely right now.

the balance sheet. So where do we find the balance sheet? Well, I'll take a look here. There's something here that says financial statements and supplementary supplementary data. Let's click that. Oh, look at that. Here's a statement of income. That's one of the three. And here's um the balance sheet. So the balance sheet will tell us how much cash they have. Well, here's cash, cash an equivalent, 7 billion. Remember this is in dollars and millions. 7 billion dollar. Okay. So Coke has 7309 in cash. But what about this short-term Investments? Well, that's kind of like cash. So I like to include that because even though it's not cash, it could probably be sold as cash. So I'm thinking about liquidity. Any kind of cash, marketable Securities, that sounds like cash too, 4269. And I add that as well. And now there's 20 billion in cash. How about accounts receivable? Well, what's accounts receivable? Accounts receivable is cash that you're owed. Accounts receivable, cash owed to

[Music] you by your customers, and that's not really cash, right? Occasionally, it's kind of like cash. In America, it takes about 60 days, 45 to 60 days, to collect cash, depending on your business. If you're a retailer, you collect your cash up front. You don't go to the store and say, I'll pay you back for this Kanye sweater in 45 to 60 days. No, they want your money right then and there. So, there are some businesses where this is different, but for most of corporate America, you're looking at 45 to 60 days. And so, accounts receivable, I don't think of it as cash. I think of cash. I think of any kind of cash in a bank account. I think of stocks and investments. I think of bonds, anything that's kind of like I could sell tomorrow, and the value won't be disputed. The value won't be disputed. It's easy to calculate the value, and they're liquid.

some way I can sell them. You could sell accounts receivable. I mean it's close, it's close, but it's just kind of where I cut it off as cash inventories. Well, this is soda, basically, right? Prepaid expenses, assets for sale. We'll talk about all this stuff. They're all accounting gibberish. Here's some more Investments, more Investments, Equity method Investments, and other Investments. So I'm going to include these two 12318 3470. All right, right, we're up to $36 billion of cash. Is there any other cash? No, no, no, none of this is Cash. All right, so we're done with the cash side. So they have 90 billion of assets and about 36 billion of that I felt was cash and cash like. How about debt? How about debt? Well, now there's liabilities in the balance sheet. You have assets and liabilities. All right, what kind of liabilities? Where's the debt? Well, here's long-term debt 28 billion. And I know a lot of you might say well

what does that mean? Well, companies borrow money. That is very common, and the bigger the company you are tends to be, the more that you borrow. And debt does not mean it's not a bad thing. Debt is not a bad thing. Here's some more debt, and here's some more debt. 13 billion, 129. And you can see that Coca-Cola actually has more debt than cash. Isn't that crazy? You would think that in business, the more you succeed, the more cash you build up, but it's not true. Big companies, what they do is that they um, they'll invest their excess cash, and they'll borrow money on because they have good credit, right? Most small companies can't borrow money like Aion Pharmaceuticals would have a hard time borrowing money, but Coca-Cola, they can borrow money at low interest rates. They can borrow money at low interest rates, and they do that, and they do. They use that money to do acquisitions. They use that money to pay dividends. They use that money to buy back their own stock.

and what I like to look at is net cash. So net cash is Cash minus debt. In this case, it's about negative 9 billion. If we add that to the market cap, we get something called Enterprise Value, which I'll discuss in a minute. Hang on one second. And so these are the six things that are important to investing. Just give me one e hey let's talk some Investments guys. Oh okay I'm back sorry about that. Um okay let's get back to work. So okay so we have market cap and then cash and debt. And cash and debt it all makes sense right. I mean you cash and other Investments basically things that I can sell things that I can sell and have cash debt or money I owe right. This company company has borrowed money and we'll have to pay this back. And the difference here is about what 9 billion 8 and half billion dollars. So if you buy a share of this company you actually are buying you're also buying that kind of net cash. So if you buy a

company. Let's just make up our streaming company. Again, we'll call it the Young Streaming Co. And, uh, forget about what the price, the shares outstanding, market cap, cash, debt, Enterprise Value. Let's say, like I said, the price is $200. There's four shares outstanding, so the value is $800. But let's say there's $11,000 of cash and no debt. When you buy all four shares of the streaming company, you are buying, you've bought the company. If you bought all four shares, you've bought the company. Um, you've bought the entire company. And if the company has $1,000 of cash, what ends up [Music] happening is that that's your cash, that's your cash, right? You can take that cash and put it in your own bank account. That sense, now it's the company's cash, but the company can pay a dividend. And yeah, you get $200 basically for free, and you got the whole business for free. And I hope that that makes sense. If that doesn't make sense to anyone, you

can dial in and I can try to explain it further. Does anyone have any questions? Dial in and ask the question. Hey Martin, can you go over the uh, the um, the EV? I can't remember the name. What that was. Enterprise Value. Yeah, I'll do that in a second. Okay, so basically, uh, let's see. Here. Are you on my YouTube stream? Yeah, yeah, I'm watching the YouTube stream. So you understand the, the market capitalization? Yep, yep, I got that part. Okay, so we're looking at this imaginary company. Well, let's look at a real company that's maybe easier. So Coca-Cola. It's a $185 billion company. That makes sense. They have $35 billion of cash. Um, and that includes all the cash in all the company's bank accounts in the world. And um, it adds up to about 35 billion. It also includes investments because if you, they spent money to invest in a company, I think that investment is also. I think of it as cash. You don't have to do it that way. It's

the way I recommend doing it because it in my eyes um I think of it as cash because if I take over this whole company Coca-Cola. I don't I'm not just buying the the bottlers the manufacturers the the concentrate they make um and all of the the things of the company. I'm also buying their bank accounts. I'm also taking over their debt. All of these things are now mine and includes their Investments they've made so their cash is 35 billion and I've added that up from the from the balance sheet. The debt is the same thing the debts a little more clear you owe money you owe money it's very it's very easy to add up that uh the the people you borrowed from make sure it's it's very easy to to know exactly how much you owe and if you have 35 billion in cash and 45 billion in debt you have about $ 10 billion that you owe and that's about kind of the situation of Coca-Cola now of course they make more money every

year they'll make another 10 billion dollar or $20 billion a year. So a year from now, they'll have $55 billion of cash and $44 billion on that. So they make so much money they have to spend it. And they spend that cash on investments or BuyBacks or whatever they might decide to spend it on. So the Enterprise Value is interesting. The Enterprise Value is the market cap, which is as we know the value of the company. And then the Enterprise Value adjusts for the net cash. And why do we do that? Well, let me just write out the formula real quick. Market cap oops oh I could start with market cap. Market cap minus Cash Plus debt equals Enterprise Value. And why do we why would we care to do this calculation? Well, it's pretty simple. If if you had a company that had a hundred billion let's say of cash let's pretend that Coca-Cola had a hundred billion dollar of cash and they had $44 billion of debt let's say they had no debt this is an

easy way to look at it. The Enterprise Value is 85 billion. That's the value of the business after you've taken the cash into consideration. That make sense, yeah? So, and you want to know what that is because let's say Coca-Cola is making 20 billion a year earnings in one year. Well, you could say, Well, they're making 20 billion in earnings and they the company's worth 185 billion. But you're not. The company's not really worth 185 billion because there's 100 billion in cash. The company's really worth 85 billion because the cash isn't worth cash is worth what it's worth. So, you have to take that out of the equation if that makes sense. And the earnings is about four years of earnings. So, every time you buy the stock, it's about four years earning. So, we'll talk about that in great detail. And it's okay if it doesn't make a lot of sense at first. It will, you know, but that's sort of the concept of owning a business. You sort of

or even when you own a share of a business, the cash and the debt are very important to look at because you have to sort of determine what the Enterprise is worth versus what the shares are worth. In the case of Coca, it's about the same. The Enterprise Value is 195 billion, the market Cap's 185 billion. But you want to know if you're buying a company that's all cash. Yeah, that's right. Taking the static elements out of the equation is one way to think of it.

Martin Shkreli: "6 Things I Look At When Analyzing A Company"

Shkreli Planet

Analyzing Stock Investments: A Beginner's Guide

When analyzing a stock, it's important to consider the price per share, the number of shares outstanding, and the market cap.

Understanding the company's cash, debt, and Enterprise Value is crucial, and this information can be found in its financial statements.

The balance sheet is especially important for determining the company's liquidity, as it provides information about the company's cash on hand and short-term investments.

Managing Cash, Investments, and Debt in Corporate Finance

Companies typically take 45 to 60 days to collect cash from customers, with accounts receivable being less liquid than actual cash.

Coca-Cola has around $36 billion in cash and cash-like assets, but carries over $40 billion in long-term debt, using borrowing to fund investments and operations.

Despite having more debt than cash, the company leverages its good credit to borrow money at low interest rates for various financial activities.

Understanding Enterprise Value and Its Importance in Investments

Net cash is the difference between a company's cash and debt, and when added to the market cap, it gives the Enterprise Value.

Enterprise Value is crucial in evaluating a company's total value and its significance in investment decisions.

Cash, debt, and Enterprise Value are essential factors to consider when buying a company, as they can impact the overall cost and potential benefits of the investment.

The Impact of Cash and Debt on Coca-Cola's Value

Coca-Cola's cash reserves amount to $35 billion, while the company's debt stands at $45 billion, leaving them with a net debt of $10 billion.

With their significant annual revenue, the company is constantly investing and paying off debt, affecting their enterprise value.

The enterprise value, which takes into account the net cash, is a crucial measure of the company's true value, providing insight into its financial situation.

Understanding Enterprise Value and Its Importance

The enterprise value is the business's total value, taking cash into consideration, which is crucial in determining the true worth of the company.

Deducting the cash from the enterprise value helps to accurately assess the business's actual value.

Considering the enterprise value in relation to earnings and debt is essential in evaluating a company's worth and potential investment.