Business, Legal & Accounting Glossary
Enterprise Value (EV), also called Total Enterprise Value (TEV), is used as a more accurate alternative to market capitalization. It represents the entire cost of a company if someone were to acquire it. Enterprise Value includes a number of important factors such as preferred stock, debt, and cash reserves that are excluded from simple market capitalization.
The formula for Enterprise Value adds a corporation’s market capitalization, preferred stock, and outstanding debt together and then subtracts out the cash and cash equivalents found on the balance sheet.
Many analysts look for companies that are generating a lot of cash flow in relation to Enterprise Value. Businesses with high cash flow relative to Enterprise Value usually don’t require much additional reinvestment. Instead, the owners can take the profit out of the business and spend it or put it into other investments.
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This glossary post was last updated: 22nd March, 2020