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Enterprise Value (EV)

Enterprise Value (EV) is a financial metric that measures the total value of a company, including its equity, debt, and cash. It is calculated by adding market capitalization, total debt, and minority interest, then subtracting cash and cash equivalents. EV provides a comprehensive valuation of a company, making it a useful tool for investors assessing acquisition targets or comparing companies with different capital structures. Unlike market capitalization alone, EV accounts for a company’s debt and cash levels, offering a more complete picture of its true value.

Example

A company with a market cap of $100 million, $20 million in debt, and $10 million in cash has an EV of $110 million ($100M + $20M - $10M).

Key points

• Measures the total value of a company, including equity, debt, and cash.

• Provides a more comprehensive valuation than market capitalization alone.

• Used by investors to assess acquisition targets and compare companies.

Quick Answers to Curious Questions

EV measures the total value of a company, including its equity, debt, and cash, offering a comprehensive valuation.

EV helps investors assess acquisition targets and compare companies with different capital structures.

Unlike market capitalization, EV accounts for a company’s debt and cash levels, providing a more complete picture of its value.

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