Enterprise Value

Quick Summary of Enterprise Value

A measure of what the market believes a company’s ongoing operations are worth. Enterprise value is equal to (company’s market capitalization – cash and cash equivalents + preferred stock + debt). The number is of importance both to individual investors and potential acquirers considering a takeover attempt.

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.

Examples of Enterprise Value in a sentence

You should try to keep up to date with your enterprise value so that you know exactly where you stand.

The enterprise value was very high and it made some of us wonder what was going on to make it like that.

The enterprise value of the new company looked dismal as the high value of their initial debt took away from their assets and gains which ultimately made it difficult for the company to continue.

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