Enterprise Value

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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.

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.

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.