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

A company can indeed have a negative enterprise value when it has a high cash balance relative to its overall financial obligations, including debt. Enterprise value is calculated using the formula:

EV = Market Capitalization + Total Debt - Cash and Cash Equivalents.

When a company's cash and cash equivalents exceed its market capitalization and total debt, the equation leads to a negative enterprise value. This situation often signifies that investors believe the firm's equity is undervalued compared to its cash reserves, or it might indicate a temporary financial distress where the company's operations are not currently reflecting its cash-rich position.

In this scenario, a negative EV typically suggests that the market may anticipate future challenges or that the company is not utilizing its cash effectively to create value. However, the positive cash balance can be viewed as a buffer, offering the possibility of leveraging a more favorable future position or protecting against potential downturns.

The other options present various misconceptions about enterprise value. For example, while high debt levels (as outlined in another choice) can impact market capitalization and perceptions of financial health, they do not directly correlate with the concept of negative enterprise value without considering the cash balance.