In calculation of Enterprise value, we take the sum of value of equity, debt, preference shares and reduce surplus funds/cash and cash equivalents.
Why is surplus funds/cash and cash equivalents reduced?
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Enterprise value is the value of the enterprise that we need to buy it today. Cash and cash equivalent means cash and other securities that can be converted immediately without loss in value of such security. So if an enterprise all things(market cap+pref cap+debt+minority int)=2100 Cr. and cash and cash eq is 100 Cr. So we are buying an enterprise for 2100 and getting 100 Cr. as cash so basically what are we paying for the enterprise is 2,000 Cr.