Enterprise Value Calculator

What is enterprise value?

Enterprise value (EV for short) is a method of calculating how much a particular company is worth.

The EV method is more precise than other methods, such as market capitalization or EBITDA multiple. The EV doesn’t consider only assets or just a stock price and analyzes debt, share structure, and cash available.

The result of the enterprise value calculation is the current purchase price of the whole company. The value considers the company's debt since the potential buyer must repay all the liabilities after he takes over the company.

The characteristics of EV:

Enterprise Value is a metric of the entire company’s value.
EV includes not only the market capitalization of the company but also total debt (both long-term and short-term), cash and its equivalents, minority shares, and preferred shares.
This metric is also a component of other more complex company's performance metrics.

How to calculate enterprise value?

The formula for EV calculation is not complex, but in order to calculate it correctly, you need to understand all of its components clearly. Below we describe each variable of the EV equation briefly.

Market capitalization

The current market value of the company. In short, it's the number of outstanding shares multiplied by the current stock price.

Minority interest

Minority interest, also known as non-controlling interest (NCI), is an equity share of ownership in other companies that the parent company does not control.

In other words, the company may own other companies, but sometimes it could have only a fraction of the shares. Minority interest represents the value of shares not owned by the company.

Preferred shares

Preferred shares represent the type of stock that gives its holder the priority in receiving the dividends and a preferred claim to companies assets.

Debt

The amount of debt the company has.

Cash and cash equivalents

The total amount of cash in possession of the company. It does not always have to be cash. It could be as well in the form of other liquid assets.

Enterprise value formula

EV = market_cap + debt + minority_interest + preferred_shares - cash

How to increase the company value?

The company value is derived from its profits, so basically, increasing the effective EBITDA margin leads to increased company value.

Authors

Created by Lucas Krysiak on 2022-07-23 16:06:22 | Last review by Mike Kozminsky on 2022-09-15 14:11:51