What Is Enterprise Value – EV?

Enterprise value (EV) is a metric for a company’s overall worth that is sometimes used as a more complete alternative to market capitalization. EV takes into account not only a company’s market capitalization, but also its short- and long-term debt, as well as any cash on its balance sheet. A prominent metric for valuing a business for a possible acquisition is enterprise value.
EV=MC+Total Debt−C
MC=Market capitalization; equal to the current stock price multiplied by the number of outstanding stock shares.
Total debt=Equal to the sum of short-term and long-term debt
C=Cash and cash equivalents; the liquid assets ofa company, but may not include marketable securities​

Enterprise value (EV) is a measure of how much the company is worth. In other words, it is the cost of buying the company. It is calculated by adding the market capitalization to the total debt and subtracting the cash held by the company. Given that it considers debt and cash, it turns out to be a relatively accurate measure of a company’s value.

For example, two companies with the same market capitalization can have different enterprise values due to differences in their debt and cash balances.

The simple formula for enterprise value is:

EV = Market Capitalization + Market Value of Debt – Cash and Equivalents

Market capitalization = value of the common shares of the company

Debt = All inclusive of bank loans, bonds which are to be dealt by the acquirer

Cash and Cash Equivalents = Highly liquid investments, cash in hand, cash at bank are considered