Enterprise Value
factor.formula
Enterprise value calculation formula:
In the enterprise value (EV) calculation formula, the meaning and calculation method of each parameter are as follows:
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Enterprise Value represents the theoretical acquisition cost of the company as a whole.
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Market Capitalization is the total market value of all common shares issued by a company. It is calculated as: common stock price * number of common shares issued. It reflects the shareholders' assessment of the company's value.
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Total Debt, including short-term and long-term interest-bearing debt. It represents the total amount of all debts that the company needs to repay, reflecting the company's financial leverage and debt repayment obligations. It should be noted that only interest-bearing debts, such as bank loans, bonds, etc., are included here.
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Preferred Stock Book Value refers to the book value of the preferred stock issued by a company, reflecting the claim rights of preferred stockholders on the company's assets. Preferred stock usually has fixed dividends and priority repayment rights, which should be considered in the calculation of corporate value.
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Cash refers to the cash and bank deposits held by a company, representing the liquid assets that the company can use immediately.
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Short-Term Investments refer to short-term financial assets held by the company that can be quickly converted into cash, such as money market funds, short-term bonds, etc. These assets are considered cash equivalents and therefore need to be subtracted when calculating the enterprise value.
factor.explanation
Enterprise value (EV) is a more comprehensive valuation metric than market capitalization. Market capitalization only reflects the value of equity investors, while enterprise value takes into account the value of all stakeholders of a company, including shareholders and creditors. By adding total liabilities from total market capitalization and then subtracting cash and short-term investments, it can more accurately reflect the actual cost of acquiring a company. It excludes the impact of the company's own liquid assets on the company's actual value, thereby more clearly reflecting the operating value of the company. In practical applications, enterprise value is often used to calculate other valuation ratios, such as EV/EBITDA, EV/Sales, etc., to enable cross-company and cross-industry comparisons. It is worth noting that in specific cases, the formula may need to be adjusted, for example, to consider other factors such as non-controlling interests.