Enterprise ValueView Financial Glossary Index
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Enterprise Value (EV) is a valuation metric alternative to traditional market capitalization that reflects the market value of an entire business. Like market cap, EV is a measure of what the market believes a company is worth. Enterprise value captures the cost of an entire business, including debt and equity. It is a sum of claims of all preferred shareholders, debt holders, security holders, common equity holders, and minority shareholders - unlike market cap, which only captures the total value of common equity securities.
EV is considered the theoretical purchase ("takeover") price of a business because a purchaser would take on the company's debt, while pocketing the company's cash and gaining a right to all of the company's future earnings.
Enterprise Value = Market Capitalization + Current Portion of Long Term Debt + Non-Current Portion of Long Term Debt + Book Value of Preferred Stock + Book Value of Minority Interest - Cash and Short Term Investments
Note: Some providers will subtract the value of Marketable Securities and certain Long Term Investments from the Enterprise Value of a company. This is a reasonable approach, but because of how our data provider aggregates data, we cannot separate marketable securities (or long term cash-like investments) from other investments, which may not be as liquid. Hence, we conservatively reduce Enterprise Value only by the value of Cash and Short Term Investments.