Could a company have a negative Enterprise Value? What would that mean?

• A. No, EV cannot be negative.
• B. Yes, it can be negative due to a large cash balance or very low market capitalization.
• C. Only banks can have negative EV.
• D. Negative EV implies bankruptcy.

Answer: (B)

The idea being tested is that Enterprise Value can be negative when cash on hand outweighs the value of all other claims on the company. EV represents what it would cost to acquire the company’s operations: you take the equity value (market cap) and add debt, minority interest, and preferred equity, then subtract cash. If the cash balance is enormous relative to the other components, subtracting cash can push the total below zero. In that situation, the value of the business’s operations is effectively less than the cash it holds, so a buyer could acquire the company’s equity and still end up with more cash than the enterprise is worth. This doesn’t necessarily mean bankruptcy; it simply reflects a cash‑rich balance sheet with relatively little other value attached to the ongoing business. The idea that EV cannot be negative or that only banks can have negative EV isn’t accurate, and negative EV doesn’t automatically imply bankruptcy.