Enterprise Value

Enterprise Value

The market capitalization of a firm's equity plus the market value of the firm's debt. Often the value of assets that are non-core are excluded from the final calculation.

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Enterprise Value

The market value of a company if it were (hypothetically) to be taken over. It is calculated by adding its market capitalization to its debt, minority interest, and preferred equity at market value, then subtracting its cash or cash equivalents. This is an important aspect of business valuation and accounting.

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Enterprise value. A company's enterprise value is its worth as a functioning entity, or its acquisition cost.

You calculate enterprise value by adding a company's total long- and short-term debt to its market capitalization and subtracting its liquid assets, including cash, cash equivalents, and investments. In some formulas, preferred stock and minority interest in the company are included as debt while current accounts receivable and inventory are included as cash.

>From an investor's perspective, considering enterprise value as well as market cap and the customary ratios, such as price/earnings ratio (P/E) and earnings per share, can provide greater insight into the company's potential long-term worth.

>From a buyer's perspective, the more debt and the less cash a company has, the more expensive owning it will be, since the debts must be paid off and there's little cash to offset the interest. This reduces the price the acquirer is willing to pay.

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Enterprise Value (EV)

What Does Enterprise Value (EV) Mean?

A measure of a company's value that often is used as an alternative to straightforward market capitalization. EV is calculated as market cap plus debt, minority interest, and preferred shares, minus total cash and cash equivalents.

Investopedia explains Enterprise Value (EV)

One should think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company's debt but would pocket its cash. EV differs significantly from simple market capitalization in several ways, and many consider it a more accurate representation of a firm's value. The amount of a firm's debt, for example, would have to be paid by the buyer when taking over a company; thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation.

Related Terms:
• Book Value
• Fair Value
• Total Enterprise Value—TEV
• Cash and Cash Equivalents
• Market Value