Enterprise Value Calculation

by

Enterprise Value Calculator

Market Capitalization: $0.00
Enterprise Value (EV): $0.00
function calculateEnterpriseValue() { var sharePrice = parseFloat(document.getElementById('ev_share_price').value) || 0; var sharesCount = parseFloat(document.getElementById('ev_shares_total').value) || 0; var totalDebt = parseFloat(document.getElementById('ev_total_debt').value) || 0; var cash = parseFloat(document.getElementById('ev_cash_assets').value) || 0; var preferred = parseFloat(document.getElementById('ev_preferred_stock').value) || 0; var minority = parseFloat(document.getElementById('ev_minority_interest').value) || 0; var marketCap = sharePrice * sharesCount; var enterpriseValue = marketCap + totalDebt + preferred + minority – cash; document.getElementById('res_market_cap').innerText = '$' + marketCap.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('res_final_ev').innerText = '$' + enterpriseValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('ev_results_box').style.display = 'block'; }

Understanding Enterprise Value (EV)

Enterprise Value (EV) is a comprehensive measure of a company's total value, often viewed as the theoretical takeover price. Unlike market capitalization, which only reflects the value of common equity, EV provides a more accurate picture of a firm's worth by accounting for debt, cash reserves, and other financial obligations.

The Enterprise Value Formula

EV = Market Capitalization + Total Debt + Preferred Stock + Minority Interest – Cash and Cash Equivalents

Key Components Explained

  • Market Capitalization: Calculated as the current share price multiplied by the total number of outstanding shares. It represents the public's valuation of the company's equity.
  • Total Debt: Includes both short-term and long-term interest-bearing liabilities. In an acquisition, the buyer must assume this debt, making it a "cost."
  • Cash and Cash Equivalents: These are subtracted because they reduce the net cost to an acquirer. If you buy a company for $100 but it has $20 in the bank, your "true" cost is only $80.
  • Preferred Stock: Hybrid securities that act more like debt than equity, often requiring repayment in a change-of-control event.
  • Minority Interest: The portion of a subsidiary that the parent company does not own, but which is included in the consolidated financial statements.

Example Calculation

Imagine "TechCorp" with the following financials:

Share Price $50.00
Shares Outstanding 2,000,000
Total Debt $20,000,000
Cash $5,000,000

Step 1: Calculate Market Cap: $50 × 2,000,000 = $100,000,000.

Step 2: Add Debt and Subtract Cash: $100M + $20M – $5M = $115,000,000 Enterprise Value.

Why is EV Important for Investors?

Investors use Enterprise Value to compare companies with different capital structures. It is a vital component of valuation multiples such as EV/EBITDA and EV/Sales. Because EV includes debt, it provides a more "apples-to-apples" comparison between a company that is heavily leveraged (lots of debt) and one that is funded purely by equity.

Leave a Comment