The Daily Technical #57: What is enterprise value and how do you calculate it?

Good morning. Welcome to the 57th edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
What is PIK interest?

PIK stands for “Paid-in-Kind.”

PIK interest is interest that accrues towards the ending debt balance as opposed to being paid in cash in the current period.

While opting for PIK may conserve cash for the time being from deferring interest payments to a later date, the debt principal due at maturity increases each year, as well as the accrued interest payment amount.

Common Mistakes

1. Focusing solely on the cash-saving aspect without addressing the increased debt burden. Balance your explanation by explaining both advantages and risks.

2. Overlooking how PIK compounds debt over time. Point out that while it may relieve immediate cash flow, it could cause bigger financial obligations and challenges down the line.

TL;DR

• PIK refers to “Paid-in-Kind”

• This is interest that is not paid in cash immediately but adds to the loan principal.

• It conserves immediate cash flow but increases future debt liability.

TODAY’S QUESTION
What is enterprise value and how do you calculate it?

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THAT’S A WRAP
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See you tomorrow,
The HirePrep Team