Definition
Enterprise value represents the theoretical takeover price of a company. It adds debt to market cap and subtracts cash because an acquirer would assume the debt but gain the cash. EV is the basis for many valuation multiples and is more comprehensive than market cap alone.
Formula
EV = Market Cap + Total Debt - Cash and Equivalents
Example
A company with $10 billion market cap, $3 billion debt, and $1 billion cash has EV of $12 billion. The acquirer would pay $10B for equity, assume $3B debt, but receive $1B cash.
FAQ
What is Enterprise Value (EV)?
The total value of a company including equity and debt, minus cash.
How do you calculate Enterprise Value (EV)?
A common formula for Enterprise Value (EV) is: EV = Market Cap + Total Debt - Cash and Equivalents
Why is Enterprise Value (EV) important?
Enterprise Value (EV) helps investors evaluate valuation and make more informed decisions.