Recently, Financial Technologies caught our attention due to an interesting aspect in its balance sheet. The current (as on November 22, 2015) market capitalisation of the company is ₹468 crore, whereas the cash and equivalents lying with the company (as on March 31, 2015) are ₹2,027 crore. The company has debt and payables of ₹520 crore, which translate into an enterprise value of ₹-1039 crore. Yes, that is a negative sign before the number.

Enterprise value is derived by adding market capitalisation and total debt, and subtracting cash and equivalents. It signifies that if you want to own a company completely, then you need to pay the market-cap value to the equity holder, pay back the loans and payables, and in turn you get back the cash lying with the company.

A negative enterprise value means that you will actually get paid if you buy the company. Is this rare incident an opportunity to invest in the Financial Technologies stock? The answer is a clear no. There is more to this matter than what meets the eye. Financial Technologies was embroiled in a big scam in 2013, when its subsidiary exchange NSEIL defaulted on the payment to its investors in commodity pair contracts; it is is estimated to be a ₹5,600 crore fraud. The scam was initiated by Financial Technologies promoters and the case is still going on.

In addition to the stigma of being involved in a scam, the company may also need to pay much more in penalties than what is visible in the balance sheet. What is not reflected in the balance sheet is the company's contingent liability, which can be anything. Therefore, what looks like an attractive negative enterprise value is just an illusion, which may vanish anytime, sinking your investments as well. Stay away from the stock and invest in credible and fundamentally strong companies instead.

One should use the differential between the enterprise value and market capitalisation as an investment opportunity only when the company is backed by strong fundamentals and an honest management.