Equity valuation in the real world doesn't really work as in theory. But for what it's worth I don't think adventured is right and I find that your point about enterprise value being more meaningful than market capitalisation is mostly valid.

The "best" capital structure for GM has been widely discussed recently, see for example: https://www.bloomberg.com/view/articles/2017-03-28/hedge-fun...

> But certainly if the GM entity had $10B more cash tomorrow, it might not be worth $10B more, but certainly it would be worth $5-$10B more (or at the very least >0 more)?

No, again, that's not how it works. Shareholders value companies primarily based on a multiple of earnings with an overwhelming tilt toward future expectations, not based on cash. Cash can receive anywhere from a medium to a near-total discount, depending on the context & company. As an easy example: Apple's cash has stopped growing at the rate it used to (they're paying a lot of it out), while it has taken on immense debt in a short time, and its earnings have not expanded in years (in fact they've fallen as with sales, re fiscal 2016 vs fiscal 2015) - meanwhile, its stock has been given an increased multiple lately, AAPL is up 47% (adding $200+ billion in market cap, while earnings went down and debt went up) in the last year despite those theoretical negatives. Why? Shareholders mostly don't care about the accumulated debt or the slowdown in cash accumulation.

There are a few exceptions, for example if a company is under serious bankruptcy risk. That can dramatically damage the valuation given to a company via its income. In that specific case, adding a ton of cash to relieve the bankruptcy risk, can produce a greater than 1x release in value as shareholders shift back to operating fundamentals & future expectations. Valeant Pharmaceuticals is a walking example of that right now. To the extent Valeant manages to lift the dark cloud of bankruptcy off of it, their market valuation will rise (every time they announce they've paid down some debt, or sell an asset for a good price, their stock tends to spike; they have something like $29b in long-term debt and the debt interest is threatening their existence; if they magically added $10 billion in cash tomorrow, their market cap would expand by something near a 1 to 1 basis or likely greater (depending on the bankruptcy pressure, relief from it can generate an amplified upside)). Another exception example: Las Vegas Sands (LVS), the casino giant, was under serious risk of bankruptcy during the economic crash in 2009; its founder, Sheldon Adelson, decided to back the company with a large amount of money, the stock proceeded to increase by 5x to 6x in a matter of a few months afterward, due to the relief that bankruptcy was no longer nearly so likely (shareholders shifted back to valuing the company on its future earnings/growth/operating expectations). LVS gained so much so quickly, because the risk of bankruptcy was viewed as being so severe it had drastically depressed the market cap of the company.

Certainly if there were two identical companies, and one had $10B more in cash, the one with $10B more in cash would be worth more than the other company? I understand it's not 1-1.

I'm thinking completely theoretically, so if the world doesn't work like finance theory, fine. But I just can't see any way in which leverage, debt, cash, etc don't substantially alter the market cap of a company.

> Certainly if there were two identical companies, and one had $10B more in cash, the one with $10B more in cash would be worth more than the other company?

Not necessarily. If shareholders believe the company with the less cash has a better future, that is if future earnings/growth expectations are higher for the company with less cash, then said company may be granted a dramatically higher market cap.

Two companies with identical balance sheets, identical growth rates, and identical net income numbers, can have radically different market caps. It depends on how shareholders regard the companies, what they think their futures look like (and sometimes it even depends just on more ridiculous things like hype / herd insanity, as eg with the dotcom bubble, in which Cisco was given an extraordinary multiple off its earnings).

Walmart's balance sheet & profit picture were far superior to Amazon's at the time when Amazon became larger than Walmart in terms of market cap. Shareholders came to believe that Amazon had a far brighter future, in regards to growth etc etc. Amazon has been granted an unusual valuation for a very long time, on the basis of expectations of future growth.

adventured is having a really hard time with your phrase "two identical companies". The answer to your question is yes, if you had two identical companies and then gave one of them $10B in cash, that company would be worth $10B more.

Actually adventured is right on non-operating cash being usually discounted. In general the second company will not be valued at $10bn more than the first.

Would you rather have a $1 in cash and a $9 share in the first company, or a $10 share in the second company where $1 is the cash per share? The second case is more risky so you wouldn't pay the full extra $1 for the second share.

Of course it could also be the case that the spread is larger than $1, if the first company is too short on cash and there is a liquidity risk depressing the valuation.

> The second case is more risky

Not if they're otherwise identical companies, it isn't. There may be reasons to expect a correlation between risk and cash holdings, or something to that effect, but ultimately a share in a company is a share of ownership of that company's assets. If a company didn't become $10B more valuable when given $10B in cash, where exactly did that value disappear to? Value doesn't vanish into thin air simply because it's now owned by a company.

Your loss is limited to $9 in the first case, but you can lose $10 in the second case. If you think this is not more risky, fine.