What is enterprise value?
This is a way to measure the total value of a company. It's calculated by taking the firm's market capitalisation , adding total debt , then subtracting cash and investments.
Where have you heard about enterprise value?
It's sometimes used as an alternative to market capitalisation. It's seen as a more accurate reflection of a firm's true value, so is used when looking at takeover bids.
What you need to know about enterprise value.
The full calculation is market value of common stock + debt + minority interest + preferred equity - cash and cash equivalents. It's sometimes seen as more accurate than market cap because any potential buyer would usually have to take on a company's debt, but could keep its cash. Usually once enterprise value has been calculated, investors compare it with other measures such as cash flow or earnings before interest and taxes (EBIT) to gain a true picture of what the company is worth.
Find out more about enterprise value.
Check out our guide to working capital to learn more about calculating a company's financial health.