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Investment Dictionary


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Enterprise Value

 

Enterprise value (EV) is a financial measure that is used to reflect the magnitude of the business. If market capitalization shows only the value of shareholders equity, enterprise value includes both: equity value and debt value (and other smaller parts). 

 

ENTEPRISE VALUE CALCULATION: 


EV = market capitalization + net financial debt + minority interest + preferred equity 

 

Net financial debt = long-term financial debt + short-term financial debt - cash - financial assets

 

* If possible market value should be used. 


Enterprise value is mostly used for a calculation of firm’s valuation multiples (for relative valuation) as EV/EBITDA, EV/S when market capitalization is used for multiples as P/E or P/B. 

 

Market capitalization and enterprise value are similar terms in their meaning because both are reflecting the market value of business / ownership but the difference is that market capitalization shows the market value of the shares (for equity creditors) when enterprise value have to include market value of the business for all the capital providers (equity owners, loan providers, minority shareholders, preferred equity holders). In simple words, enterprise value shows the market value of a business / firm as a whole, but not only the value for shareholders. 

 

 






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