Enterprise value (EV) is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization.
Enterprise Value plays a significant role for the investors to find the actual value of the company.
It also helps in comparison of companies having different capital structures.
Formula to calculate enterprise value.
Market capitalization refers to how much a company is worth as determined by the stock market.
The market value of debt refers to the amount of bank debt that firms have but do not directly report on their balance sheet.
Example:
Suppose company X Limited has the following financial information:
- Market Capitalization: $ 300 million
- Cash and Cash Equivalent: $50million
- Market Value of Debt: $120 million
Calculate the company’s enterprise value.
Thus, the company’s enterprise value is $ 370 million.
