Stocks that pass this screen have excess cash far outweighing debt but are viewed negatively by the market.
Enterprise value accounts for debt and subtracts the excess cash from the equation. If enterprise value results in a negative number, the conclusion is that the company is loaded with excess cash, hence a cash rich company trading for less than it’s value.
Enterprise Value = Market Capitalization + Total Debt - Excess Cash
Excess Cash = Total Cash - MAX(0,Current Liabilities-Current Assets)
Cash is king and the more FCF a company can generate and reduce debt, the higher the intrinsic value of the company becomes.
Read more: Negative enterprise value screen backtest
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