The Motley Fool: Enterprise value and recasting mortgages

Q. What does “enterprise value” refer to? — G.R., Greenville, South Carolina

A. It’s one way to measure a company’s worth. You might think that a company’s market capitalization reflects its total value, as it’s the value of all outstanding shares. But what if its market cap is, say, $100 billion, but it’s also carrying $20 billion in debt? If you wanted to buy the whole company, you’d be taking on a lot of debt.

The “enterprise value” metric attempts to offer a clearer valuation of the company. It starts with market capitalization, adds preferred equity and then adjusts for total debt relative to cash and cash equivalents. The result is what buying the whole company would actually cost you. On top of the $100 billion you’d need to acquire all common shares, plus other equity, you’d also be on the hook for its $20 billion in debt, so its enterprise value would be at least $120 billion. If it had $5 billion in cash, that could drop what you’d need to $115 billion.

Q. What does recasting a mortgage do? — F.L., Fairhope, Alabama

A. It’s a less-well-known way to lower your mortgage payments. You can achieve that by refinancing, but typically only if prevailing interest rates are lower than your loan rate, and refinancing can add thousands of dollars in fees and other costs. When you recast a mortgage, you pay a large sum to your lender to reduce your principal owed. Then the lender recalculates your monthly payments based on the new balance.

Your loan’s term and interest rate remain the same.

Not all lenders or mortgages permit recasting, but many do. If yours does, you might see if it could help reduce your payments.

If you have debit or credit cards or are considering getting one or the other, read up on their differences and their pros and cons.

As you might know, when you pay with a debit card, the payment is taken directly from your bank account. If the payment exceeds what’s in the account, you could face an overdraft fee. With a credit card, whatever you charge on it is tapping your line of credit. You can pay your monthly credit card bill in full each month (and you should!); if you don’t, interest starts accruing, increasing the balance you owe.

Using debit cards doesn’t help you build a credit history or affect your credit score, and they typically offer no rewards. They have no annual fees and no interest rates, but not much fraud protection. They do let you withdraw cash from your bank’s ATMs with no fee.

Credit cards, on the other hand, often offer fraud protection, along with rewards in the form of points, miles or cash back. Their interest rates are often quite high — recently averaging nearly 24%, per LendingTree.com — but they generally offer strong fraud protection. Some good credit cards charge annual fees, and you may need a high credit score to qualify for them. (Note that how you use your credit card(s) can boost or lower that credit score; paying bills on time, for example, can beef up your score.) Some credit cards provide additional warranties or insurance on items you buy beyond what the manufacturer or retailer offers.

If you’re concluding that credit cards are the way to go, remember that if they’re not used responsibly, they can leave you deep in debt — and can hurt your credit score, affecting your finances in other ways. If you’re disciplined, credit cards do offer some compelling upsides. For example, with cards that offer cash back, it’s like getting a small discount on almost everything you buy.

To learn more about credit cards, visit the “Personal Finance” nook at Fool.com.

My most regrettable investing decision was buying into double-dip recession fears from 2010 to 2012 and not starting to invest. — K.T., online

The Fool responds: A double-dip recession is when a country enters a recession shortly after recovering from a previous one. Investors generally fear recessions because they’re often associated with high or rising unemployment, falling consumer confidence, a slowing economy and, possibly, a depressed or stagnant stock market.

The U.S. economy had been in a recession in 2008 and 2009, due in large part to the subprime mortgage crisis; as it eased, some were afraid of a double-dip return to recession, because unemployment was still high and many businesses were still struggling. Indeed, in 2012, Britain reentered a recession. But no double-dip recession occurred in the U.S., leaving any investors who had been waiting on the sidelines out of luck.

The S&P 500 plunged 37% in 2008, but it bounced back by 26% in 2009, 15% in 2010, 2% in 2011, 16% in 2012 and a whopping 32% in 2013. As long as you’re a long-term investor, it’s usually wiser to just stay invested in the market, riding out any downturns.

(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)

I trace my roots back to 1902, when two fellows launched a linseed-crushing business in Minneapolis to produce oil for industrial applications such as paints and adhesives. I formed a grain division in 1927, and I started crushing soybeans in 1929. My barge-freight business debuted in 1967 and my trucking division in 1979. Today, based in Chicago and with a recent market value of $37 billion, I’m a top provider of human and animal nutrition, offering food and beverage ingredients; offerings for livestock, equine and pet needs; and more. I boast 450 crop procurement locations and 330-plus manufacturing facilities. Who am I?

I trace my roots back to 2011, when some Stanford business school students set up an alumni-funded lending platform to connect recent graduates with nearby alumni. I launched student loan refinancing in 2012 and mortgages in 2014. In 2022, I was approved to be a national bank. Today, based in San Francisco and with a recent market value near $24 billion, I’m a “one-stop shop for digital financial services,” with more than 15 million members and more than $73 billion in funded loans. I offer banking, lending, investing and even cryptocurrency services. Who am I? (Answer: SoFi Technologies)

The Campbell’s Company (Nasdaq: CPB) fell to a 23-year low this spring in response to disappointing financial performances and a reduction in projections. But it’s shaping up to be a compelling high-yield dividend stock for ultra-long-term value investors.

Strained consumer spending is heavily affecting Campbell’s results, especially in salty snacks. But despite promotions and pricing adjustments, the snacks segment may not turn around anytime soon.

The good news is that the meals and beverages segment is holding up better; its decent profit margins are driven in part by growth in Rao’s tomato sauce and in soups and broths that are used as cooking ingredients rather than as stand-alone meals. Campbell’s is also responding to consumer trends, such as with its new high-protein soups.

Campbell’s has said it won’t increase its dividend anytime soon, although it remains committed to the payout. That’s good news, because the stock recently sported a hefty dividend yield of 6.9%.

Some investors may prefer to wait to buy Campbell’s until it shows signs that the worst of its slowdown is over. But risk-tolerant investors may want to buy now, given the stock’s compelling valuation — a price-to-earnings (P/E) ratio of 11 — and dividend income. (The Motley Fool recommends Campbell’s.)