Understanding Enterprise Value
Enterprise Value (EV) represents the total economic value of a business and provides investors with a more comprehensive view than market capitalization alone. EV is calculated by starting with the company’s market capitalization—determined by multiplying the current share price by the number of outstanding shares—and then adding all interest-bearing liabilities, including short- and long-term debt, bonds, and other financial obligations such as unfunded pension liabilities. Cash and cash equivalents are subsequently deducted, as they can be used to reduce outstanding obligations. This approach allows investors to assess a company’s true acquisition value and compare capital structures across investment opportunities on a like-for-like basis.