Enterprise Value
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Enterprise value (sometimes Total enterprise value, or TEV) is a market-based measure of a company's value. It is often used as an alternative to straightforward market capitalization in order to ascertain the true value of a company.
Enterprise value = market capitalization + debt + minority interest + preferred equity - cash and cash equivalentsThink of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company's debt, but would pocket its cash. EV differs significantly from simple market capitalization in several ways, and many consider it to be a more accurate representation of a firm's value. The value of a firm's debt, for example, would need to be paid by the buyer when taking over a company, and thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation.
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