2 thoughts on “Floats and Moats copy (used for blog)_Page_46

  1. Hi,
    Thanks for a great presentation..
    One query..
    “I would modify this to:”… the commentry seem to be not complete? I presume you will not deduct cash from EIL’s liability because it cannot invest surplus cash @ attractive rate?
    Thanks

    • The closer you get to the feeling that EIL’s float is permanent, the closer to zero the true value of the float accounts on the liability of side of its balance sheet becomes. The closer you get to the feeling that EIL’s float is temporary and will evaporate suddenly, the closer it’s true value and its book values are.

      So, if you’re virtually sure that EIL’s float is permanent, then cash represented by the float account become unencumbered. And if it’s unencumbered, and its surplus to the current needs of the business, then would it not be right to deduct it from the firm’s market value to arrive at EV (market’s estimate of the value of the business)? I think it would.

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