The Crown of the Statue of Liberty was dark and moist and cool on the inside.

The Fool raced around its perimeter, flashing past each of the 25 windows, thrilling past the sights of sky and water and skyline, and wishing he'd invented the kinescope. He scampered up on one window ledge, hopped forward, and looked down at the giant unshackled foot below. A woman saw him, screamed, and fainted. He jumped back from the window and resumed his run, babbling some lines from The New Colossus:

"Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning..."

He skipped over the parts he thought were boring. Just ahead he saw Diane Mills, who he'd left over on the other side of the crown chatting with the Swedish Match King.

She turned and stared at him.

"The height from the foundation to the torch is 305 feet, 1 inch," she said, as if in a trance. "From the heel to the top of her head is 111 feet, 1 inch. Her nose is 4 feet, six inches long. Each eye is 2 foot six. She contains 100 tons of copper, 125 tons of steel, and the copper sheeting skin of the statue is 3/32 of an inch thick."

Several people, thinking she was a tour guide, moved toward her.

"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore," said the Fool

The crowd grew larger.

"Ladies and Gentlemen!" said another female voice from within the crowd. "I am with the United States Treasury, and today is your lucky day. We have decided that, since Lady Liberty belongs to the public of the United States, we are going to go public with her! We are selling shares in the Statue of Liberty!"

The people in the crowd began to applaud, because the tone of voice in which the offering had been made was calculated to spur applause. When it died down, Diane Mills found the following words tumbling out of her mouth, in a torrent:

"Ten million shares are to be offered at $10 a share, resulting in a market capitalization of $100 million. We will be offering these shares for sale shortly. If you buy now, here, today, you can have them at half-price."

A gasp ran through the crowd. But it was not because of the discount offered. The people parted, leaving a lane between Diane Mills and the woman who'd spoken first from the crowd.

Diane Mills stared -- and found herself staring at a woman the same age as she, with the same eyes, the same lipstick and short dress and boa and powdered knees, holding the same cigarette as she. Diane Mills came face-to-face with Diane Mills.

"Do I stand there?" said both of them, at almost the same instant. The effect was a bizarre near-simultaneity of voice, an electric cycle slightly out of phase.

The Swedish Match King, ever on the lookout for a bargain, was oblivious to all but the potential deal, and whispered to the Diane standing next to him.

"How much debt does this enterprise have?" he asked.

"It has $25 million in long-term debt, and $50 million in cash. That means its enterprise value is $125 million. So it's an even better deal!"

Quick, reader! Should these unsuspecting tourists, and the Swedish Match King himself, plow their life's savings into this venture? Is Diane's valuation of the Statue's enterprise value correct? Its true enterprise value is:

1) $50 million

2) $75 million

3) $100 million

4) $125 million

The answer is 2) $75 million.

By looking at the balance sheet it is possible to calculate the enterprise value of a company. Two parts of the balance sheet can dramatically transform a company's *true* market capitalization -- long-term debt and cash. When you modify the market capitalization to reflect both long-term debt and cash, you essentially pinpoint the *economic value* of a company as opposed to simply calculating the shares outstanding. This is the "enterprise value".

Enterprise value is important because it adjusts a company's market cap to account for cash on hand (which would decrease the company's enterprise value) or debt (which would increase the enterprise value).

Enterprise Value = Market Cap + Debt - Cash

The reason that long-term debt is *added* is that it would add to the actual cost of buying a company. The reason that cash is *subtracted* is that it takes away from the actual cost of buying a company, because the buyer would essentially be paying cash, for cash.

If the company were to use their $50 million in cash to liquidate the $25 million in debt they would still have $25 million sitting in the bank and a $100 million market value. While the enterprise value wouldn't change right away, killing debt is usually good for earnings.

So, the Statue of Liberty Inc., itself, beyond the cash and the debt, would be worth (at that time, and according to these made-up numbers) $75 million. That figure would be a more accurate figure to run traditional valuation ratios like Price to Earnings and Price to Sales.

The Swedish match king was hurriedly scribbling calculations on the back of a Lady Liberty flyer. The two Dianes began slowly circling one other.

The Fool glanced toward an iron grill on the floor, from which a strange blue light was emanating, and which seemed to be drawing the Dianes ever closer, as a supernatural magnet.

Tomorrow: The Roaring 20s, Episode 9
The Face
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