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could someone explain how come a company has an Enterprise value number higher than their Market cap, when enterprise value equals market cap + net debt? I might be stubid but I do not understand how... also the same company is not profitable, has negative net income (for the last quarter and even the last five years) but has a positive "Total cash flows from operations" in the last quarter, how can that be? maybe there is something I am missing... just wonder if anyone knows if that is possible and how? thanks

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    Does CFO mean cashflow (rather than Chief Financial Officer)? Is this one of those 'abbreviations" that takes longer to say than the word it replaces? Nov 10 '20 at 14:51
  • @DJClayworth "OCF" (Operating Cash Flow) is more commonly used, probably to avoid this ambiguity.
    – D Stanley
    Nov 11 '20 at 16:16
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Enterprise value is Market Cap + Total Debt - Cash, so if a company has no debt (or less debt than cash) then its Enterprise Value will be less than Market Cap.

Net Income includes several items that are not included in Operating Cash Flow, most notably Depreciation expense and interest expense. So if a company books large amount of depreciation (which is a non-cash expense) or interest expense (which is a financing cash flow, not operating), then it can have a negative Net Income even though their operations are bringing cash in the doors.

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  • Thanks. About EV, I got to that conclusion too, but what is not clear to me is where is the cash coming from? It looks like the positive CFO derived from the adjustment of non-cash expenses like stock based compensation (mainly) and depreciation (partly). But Operating Income is also negative, so it is not the booking of those expenses to generate a negative net income. The company is Shopify and I checked their IS and CFS on yahoo and wallmine ( 2019 numbers). I do not intend to invest in this company at all. I just wanted to understand why they are selling at such a high price. Nov 11 '20 at 15:37
  • Stock compensation is a non-cash operating expense. They are compensating their employees partly with stock, which does not use cash, which makes Op Income negative but Op CF positive.
    – D Stanley
    Nov 11 '20 at 15:41
  • Yes, I got that. But this is not real operating cashh flow from operations as this company made only losses from operations due to high costs... so in my opinion not at all a good business and totally overvalued Nov 11 '20 at 15:43
  • Yes but part of those losses are non-cash, meaning it didn't really "cost" the company anything, but it did cost the shareholders by diluting their stock. IT is an expense that they get to deduct from their taxes. Whether it's overvalued or not is a different question - what you have to look at is future cash flow since that's what investors are investing in.
    – D Stanley
    Nov 11 '20 at 16:15
  • Ok thanks, I understand that these non-cash expenses do not really deplete the cash ( at least gross profit is positive) like other "real" expenses and therefore are added back...still this company financial statements look overall not good to me and also kinda weird... for example another weird (to me unclear) data is EBIT of 187 M in Q3 and OI 50 M according to the financial statements on wallmine... I cannot access the quarterly data on yahoo...maybe you understand why? Tx Nov 11 '20 at 18:58

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