bean Posted September 28, 2014 Share Posted September 28, 2014 After buying a stable, no-growth business for its market cap and paying off its short and long-term debt, how much excess cash can be extracted from its balance sheet? Here are three estimates: A) All cash and securities. This is the from the simplified definition of EV. B) All cash and securities, as long as the current ratio is at least 2. This is more realistic, since the business needs cash to rebuild inventory, pay employees etc. C) All cash and securities after leaving a buffer to cover the costs of one cash conversion cycle (CCC), e.g. CCC * (COGS+SG&A)/365. EV/EBIT and ROIC values can vary greatly depending on whether A, B or C is used. What are some other approaches to estimating excess cash? Link to comment Share on other sites More sharing options...
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