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The enterprise value calculator is a tool that helps you to calculate enterprise value (EV in short) - a measure of a company's total value. In this article, we will explain the overall concept, elaborate on the enterprise value formula and provide a simple example of how to calculate the enterprise value. Additionally, we will compare this method of company valuation with market capitalization and clarify when to apply each of them.
Enterprise value measures a total value of a given company, considering its market capitalization, debt, minority interest, and preferred shares decreased by a company's total cash. It is often treated as a theoretical purchase price for the whole company.
Enterprise value is based on market capitalization, the number of outstanding shares multiplied by their price. EV is said to be more accurate, as it gives us a broader view - for example, because it includes debts. A potential buyer must pay off the company's debt in the case of an acquisition, so it is an important point when it comes to deciding whether to buy a given company.
Enterprise value also includes cash and cash equivalents - in the case of an acquisition, the purchaser can directly take over this sum to cover the debts. This is why we deduct cash from the total price.
We used enterprise value in another indicator - ebitda multiple, which compares the theoretical market value of the company to its operating earnings.
