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Tommy Hilfiger Corp. (TOM) Message Board

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  • jbmjbmjbm01 jbmjbmjbm01 Nov 21, 2002 11:25 PM Flag

    2.7 times TTM Free Cash Flow

    tbeirnes made a serious misstatement.
    He said that total market cap is the market cap of the stock plus the debt. This is crazy and wrong. It is stock only! For example, let's say a 100 million dollar (stock price) company has no debt. Then they borrow 10 million dollars and use it to buy some equipment. The stock price doesn't move. The 10 million in debt is canceled by the new assets. The market cap of the company certainly doesn't jump up 10 percent for this!

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    • Thanks for you response to my post.

      Let me clarify what I said in my previous post where I said that a company's market cap is its (stock + debt - cash). You need to think of a company's market cap as what you would pay if you were buying the whole company in a total cash deal. Think of it as if you bought a house and paid $50,000 and assumed a mortgage for $50,000. The total price of the house is $100,000. However, lets say that the house comes with $30,000 of cash sitting in the cabinet drawer that the seller agreed to give you along with the house. Now you effectively paid $70,000 for the house ($50,000 + $50,000 - $30,000 = $70,000). Investors should think of what they are paying for company's the same way.

      Your example of buy $10,000 of equipment would be like then spending $10,000 on renovations to the house and borrowing the money to do it. Assuming the renovations also increase the house value by $10,000 the house is now worth $110,000 but you now owe $60,000 on it so your equity is still $50,000 (and you still have the $30,000 cash).

      I hope this explaination helps. The point is for all of use to learn from each other.

      Good luck with your investing.

    • I understood mkt. cap as the value assigned to the Co's common stock by the public market. i don't think debt is associated here... it's usually linked when doing Enterprise valuations (EV), eg. EBIDTA to EV calculations etc. Anyway, the common is conservatively worth north of $10. It was a compelling buy in the sixes,.. less so now. Great brand though.

 

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