Question

The fiscal year 2011 balance sheet (i.e., the year ended on January 29th, 2011) indicates that shareholders’ equity is $0.6143 billion. Compare this amount to the Leonard Green & Partners’ offer to Jo-Ann’s shareholders of $1.6 billion, and to $1.19 billion, which was the pre-offer value of Jo-Ann’s stock. There seems to be some disparity between the stock market’s evaluation and the balance sheet representation of Jo-Ann’s equity. Why are the two versions of the value of the firm’s equity different?

Answer 1

Equity of a company may be different when calculated by different valuation models because the Earning per share can always be basic equity share or diluted equity share, because diluted equity shares a wide term which is used to encompass different type of other shares also.

basic equity share the shares of the company and they are just like the primary equity share which have been issued in the market and subscribe by the public but diluted earnings are to be calculated based upon the dilute equity shares which will include all such convertible debt, which are going to be converted into equity share by being a little conservative and other claims on the Assets of the company along with the conversion elements so, all such other debt also who are having a element of being converted into equity share in the future are accounted into the overall equity value of the company.

So, there are two versions of equity share, due to difference in inclusions of equity share definition.