Enterprise Value

Enterprise value (EV) is an economic measure reflecting the market value of a whole business. It is a sum of claims of all the security-holders: debt holders, preferred shareholders, minority shareholders, common equity holders, and others. Enterprise value is one of the fundamental metrics used in business valuation, financial modeling, accounting, portfolio analysis, etc. EV is more comprehensive than market capitalization (market cap), which only includes common equity.

A simplified way to understand the Enterprise Value concept is to envision purchasing an entire business. If you settle with all the security holders, you pay EV.

Enterprise Value = common equity at market value + preferred equity at market value + minority interest at market value (if any) + debt at market value + unfunded pension liabilities (and other debt-deemed provisions) -associate company at market value (if any) – cash and cash equivalents.

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