The value of a company calculated as the sum of the market value of the owners’ equity, plus total debt, less cash and cash equivalents.
What It Means
The enterprise value, often abbreviated EV, is the accepted way to estimate and report the value of both private firms and publicly traded companies. It indicates what the business is worth regardless of the capital structure used to finance its operations.
Measure of business value regardless of the capital structure
The enterprise value is very useful in merger and acquisition situations that usually involve the transfer of so-called controlling ownership interests. In such transactions, it is the value of the company assets that needs to be determined, regardless of how they are financed.
Indeed, most private business acquisitions are concluded as asset sales in which the business assets are delivered to the buyer free and clear. The new owners have control as to what debt or equity capital to use to finance the business going forward.
Enterprise value – the standard for merger and acquisition reporting
Enterprise value is the standard of business value used by public companies when they make regulatory filings of merger and acquisition activities with the US Securities and Exchange Commission (SEC). As a result, financial analysts and professional business appraisers are required to value the merged or acquired company on the business enterprise value basis.