nokenzo

Hi KC, what do mean by MAX(0,Current Liabilities-Current Assets)? What is MAX and What is 0?

2013-12-16 21:28

houseofordos

nokenzo, that is just an excel formula. if current liabilities > current assets, then that value needs to be subtracted from total cash to find excess cash. If current liabilities < current assets, means that current assets able to cover the current liabilities (current ratio >1) then the excess cash = total cash

2013-12-17 13:01

kcchongnz

Yes, houseofordos explained it clearly what and how to calculate excess cash.

Excess cash is cash not needed for the ordinary operations of a business. It can theoretically be distributed to the shareholders without affecting the business. When doing valuation using discount cash flows, I add this "excess cash" to the theoretical enterprise value of the company to give the "intrinsic value".

Excess cash is typically made up from the cash in bank, FD, short term money market fund, or even equity. To be conservative, we need to have a positive net working capital (inventories+receivables-payable). As balance sheet is a snapshot of the company's financial position at a specific time, sometimes the balance sheet shows a negative working capital, but generally not for long time.

So to be conservative, we shouldn't take all the "excess cash" as such without taking into consideration that business generally requires positive net working capital.

With the above in mind, you may now understand why the formula for excess cash, which I learned it from Jae June from the Old School Value not too long ago. It took me a while to figure out the rationale.

2013-12-17 13:38

nokenzo

Thanks houseofordos and kccnongnz.

2013-12-20 03:48

vinext

FARLIM is selling below p/cash or -EV after selling a land. Debt is 100k,but how long wil this last? biggest shareholder controls 43% and used to be a taiko in pg.
In ur formula above,u subtract EXCESS CASH instead of CASH? that's a tweak to the original

2014-11-21 05:33

vinext

i've a list of -EV co, wondering if u 2 are keen to monitor them. I've 3Qs:
1) MI is added. MI is the value of holding in co, the assumption is the MV will not changed cuz u've acquired the co and then only sell of the Mi?
2) but associate co is subtracted, well u stil pocket the proceed if u sell off the stock in associate co, y subtract?
3) in ur case why u subtract CASH from current debt? just ur conservatism or own practise or?

2014-11-21 05:48

kcchongnz

Posted by vinext > Nov 21, 2014 05:48 AM | Report Abuse

i've a list of -EV co, wondering if u 2 are keen to monitor them. I've 3Qs:
1) MI is added. MI is the value of holding in co, the assumption is the MV will not changed cuz u've acquired the co and then only sell of the Mi?
2) but associate co is subtracted, well u stil pocket the proceed if u sell off the stock in associate co, y subtract?
3) in ur case why u subtract CASH from current debt? just ur conservatism or own practise or?

You need to understand what enterprise value, subsidiary and associate companies and how they are dealt with in a balance sheet, including cash. This may help:

http://klse.i3investor.com/blogs/kcchongnz/49016.jsp

You can send your list of -ve EV companies to me if you wish

ckc14training2@gmail.com

2014-11-21 08:56

vinext

ido understand what enterprise value is.A subsidiary is 50%+1share.Associate companies are 20-50%. AC usualy is recorded as invt, but not subs. Wat is ur understanding on this
ckc14training2@gmail.com for my record. BTW my 1st is FARLIM, wat abt urs?
i wil go thru my memory n chrome history to recollect,tq tq

2014-11-21 19:11

vinext

i made a mistake,AC is sellable,so u substract cuz u get the proceed,was 6am,blur d

2014-11-21 19:20