Enterprise Value
factor.formula
Enterprise value calculation formula:
The meanings of the parameters in the formula are as follows:
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Enterprise Value. Represents the theoretical total cost of acquiring the entire company.
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Market Capitalization. Equal to the company's current stock price multiplied by the total number of issued shares. Represents the market value of shareholders' equity.
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Total Debt. Includes long-term and short-term debt. Represents the value of creditors' claims. In some more detailed calculations, a further distinction may be made between operating and financial debt.
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Book Value of Preferred Stock. Refers to the book value of the preferred stock issued by the company. In the event of liquidation, the rights of preferred stockholders take precedence over those of common stockholders. If the company has no preferred stock issued, this value is usually zero.
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Cash and Cash Equivalents. Refers to the cash and cash equivalents held by the company, such as short-term Treasury bills. These assets can be quickly converted into cash, so they can reduce the actual cost when acquiring.
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Short-Term Investments: refers to investments held by the company that can be quickly converted into cash within one year, such as short-term financial products, stocks or bonds.
factor.explanation
Enterprise value (EV) is a more comprehensive valuation indicator than market capitalization because it takes into account the company's debt and cash position. Companies with high debt usually require higher acquisition costs, while large cash reserves can reduce the actual acquisition costs. Therefore, EV is widely used in M&A transactions and financial analysis, and it can help investors more accurately assess the true value of a company. In particular, EV is particularly important when evaluating companies with high debt or large amounts of cash. At the same time, it is also used to calculate various important valuation ratios, such as EV/EBITDA, EV/Sales, etc. It should be noted that in different industries or for the specific circumstances of different companies, the calculation formula of enterprise value may have slight differences, such as whether minority shareholders' interests are included, or the breakdown of liabilities.