[laydn]

Isn't this a strange way to put Toyota to be "closer" to Tesla by "enterprise value"? I mean, if toyota had 1T USD debt, it's enterprise value would have been 1.25T, and it would have been more "valuable" than Tesla. But, how is that "better", if you want to invest in a company?

I'm surprised TSLA is in such a good shape, debt-wise.

[renewiltord]

A way to look at it is that "even though it has x debt, it's still worth y". For instance, imagine you have a choice between two sports players. One is currently sick and scores at one goal a game. The other is in great health and scores at one goal a game. Which player do you pick?

Though of course he mentions it differently: how much would you have to pay to acquire all of the surplus from the company? You'd have to buy the company and it's debt.

It's a way to look at it, of course.

[A_D_E_P_T]

Somewhere towards the bottom, the post explains that "the price to buy the business and gain all its economic value is the enterprise value." So if you want to buy Toyota, and reap all of the profits, you buy all of the stock and all of its debt. Toyota and GM become much more expensive this way.

> I'm surprised TSLA is in such a good shape, debt-wise.

As the post also notes, "a high share price relative to your true value constitutes the ability to finance cheaply."

[ZiiS]

If Toyota had 1T debt and kept its its current market value then it would have to be doing much better then it is. If it could not afford the debt it would be priced in. Companies with enterprise values higher then thier market values are not better investments.

[gabesullice]

I think what you're missing is that lenders don't lend blindly. They expect to be paid back. Just as an investor expects to recoup their investment. Buying a bond (i.e. a loan to a company) is as much of an investment strategy as buying a share. Bonds come with less risk and limited reward, shares the opposite.

From the company's perspective, it has a queue of claimants who expect to be paid and the company will pay them with its profits. The queue order is roughly determined by whether the claimant holds a bond or a share (and further determined by legalities and complications within those two broad classifications. It's complicated™).

If you could walk up to anyone in the queue and ask to take their place in line, in exchange for cash, "enterprise value" is an estimate of how much it would cost to buy everyone's place in line. Or, the sum of how much everyone in line values their place in that line.

Thus, in this metaphor, Toyota could decide to sell new places in line to finance the construction of a $1T factory. But, only if people believe the factory will actually produce > $1T in new value.

[franciscop]

Exactly, I argue here (https://news.ycombinator.com/item?id=39754171) that "market cap" is probably better than this strange "enterprise value" for the stated goals of the formula, which is to compare how valuable companies are in an intuitive way for your average person.

My point being that the market cap already includes (partially) the debt and cash priced in, while this whole debt is positive, cash is negative is "if you wanted to buy the company". We do not use "country debt" to measure how "valuable" a country is, we use GDP for a reason.

[madsbuch]

> But, how is that "better", if you want to invest in a company?

This is exactly out of the scope of the article. So if the question is what you should invest in this is probably not a good metric.

The question the article answers is how to most efficiently finance your own company. It would seem like Tesla has financed selling its own stock, indicating that they think they are overvalued, where Toyota has financed selling their own bonds, indicating that they think they are undervalued.

If you trust their own assessments and want a good deal, then you should probably invest in Toyota over Tesla.

[mavhc]

Sell a lot of profitable cars, a genius business move