What is Enterprise Value (EV)?
Enterprise Value (EV) is an alternative to conventional market capitalization which reflects accurate market value of the company. It is calculated by adding market capitalization, existing portion of debt, minority interest, book value of preferred shares and deducting cash equivalents and total cash from it.
Why You Care
Enterprise value is simply a notional takeover price of the business. It is an exact measure of what market thinks a business is worth. It gives more accurate estimation of overall valuation of business than the market capitalization. When acquiring any company the debt value of the business has to be paid by buyer. So Enterprise Value gives a more accurate estimation as it considers the debt factor in its calculation.