Enterprise value (EV) is a measure of a company’s total value, taking into account its debt and equity. It is calculated by adding the market value of the company’s equity, its preferred stock, and its debt, and then subtracting out any cash and cash equivalents. The formula for calculating enterprise value is:
EV = market value of equity + preferred stock + debt – cash and cash equivalents
Enterprise value is used as a more comprehensive measure of a company’s value than market capitalization, which only reflects the market value of its equity. Enterprise value takes into account the company’s debt, which is an important factor in its overall financial health. By including both debt and equity, enterprise value gives a more complete picture of a company’s financial position and the potential risks and opportunities it faces.