medium · Investment Banking implied-share-price
Why are unfunded pension obligations added to the Enterprise Value when bridging from Equity Value?
- Because the market capitalization of a company automatically and fully includes the value of its employees' future pension benefits.
- To balance out the DCF model since these pension expenses have already been fully subtracted from Revenue earlier on.
- They represent a senior, debt-like claim on the company's operating cash flows that reduces the value available to equity holders.
- Because unfunded pensions are generally considered a current operating asset that provides a tax shield for future EBITDA.
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