What is the first step in calculating the per-share value of a public company in a DCF?

• A. Subtract debt from Enterprise Value
• B. Add cash to Enterprise Value
• C. Calculate total shares outstanding
• D. Determine the company’s market capitalization

Answer: (B)

To calculate the per-share value of a public company using a Discounted Cash Flow (DCF) analysis, the first step involves determining the company's Enterprise Value (EV). After calculating the EV, the next phase requires accounting for the company's net cash position.

Adding cash to Enterprise Value is crucial because it allows you to transition from Enterprise Value, which reflects the value of the whole business (including debt and cash), to the equity value of the company. The relevant formula here is: Equity Value = Enterprise Value + Cash - Debt. By including cash, you are accurately reflecting the amount available to equity holders, which is essential in determining the per-share value once you adjust for outstanding shares.

This process sets the stage for the subsequent calculations. After determining the equity value, you would then divide this figure by the total number of outstanding shares to arrive at the per-share value. Thus, starting with the addition of cash to the Enterprise Value is indeed a key step in moving toward the final per-share valuation of the company.