Can a company have a negative enterprise value (EV)?

A company can indeed have a negative enterprise value, and this usually occurs when the company's cash and cash equivalents exceed the sum of its market capitalization and total debt. This situation is represented by option B, as a high cash balance can lead to a scenario where the company’s EV becomes negative.

The enterprise value is calculated using the formula: EV = Market Capitalization + Total Debt - Cash and Cash Equivalents. When a company has a significant amount of cash relative to its market cap and liabilities, it can create a situation where EV is negative. This might reflect a financial position that investors perceive as undervalued or a company that is temporarily underperforming in terms of its stock price.

Moreover, having negative enterprise value does not inherently indicate financial distress or bankruptcy. Rather, it may suggest that the market views the company's future prospects unfavorably, despite the strong cash position. This can attract specific types of investors looking for undervalued opportunities.

Understanding that high liabilities alone do not cause a negative enterprise value is essential; it is the relationship between liabilities, market capitalization, and cash that determines the enterprise value. A high level of cash compared to liabilities or market cap is crucial for interpreting why a company can end up with a negative EV