Question

What are benefits of high firm value?

Answer 1

Firm value or Enterprise Value is a measure of a company’s total value. It is the theoretical price of a company. If the value of a firm is high,

Company resale value will be high.Firm value or enterprise value is:

EV = Market Capitalization + Market Value of Debt – Cash and Equivalents Or

EV = Common Shares + Preferred Shares + Market Value of Debt + Minority Interest – Cash and Equivalents.

It helps to attract more investors. High firm value gives a better image to the company while comparing with other companies. That attract more investors.

At the time of mergers and acquisition company will get high offer price. If the offered price is less than firm value, company can reject the offer.