Enterprise Value

Definition

A measure of the value of a business to its capital providers. A common calculation adds debt, preferred equity, and noncontrolling interests to market capitalization, then subtracts cash.

Enterprise value extends the view from shareholders to the company’s wider financing structure. Debt is added because it is a claim on the business, and cash is commonly subtracted because it can help offset that claim. Analysts often use enterprise value to compare companies with different amounts of debt.

Example

Company A has a market cap of $200 million, $50 million in debt and $20 million in cash. With no preferred shares or noncontrolling interests, its enterprise value is $230 million.