Enterprise Value – Definition and calculation

Enterprise value represents the value of the firm to all stakeholders. Investopedia defines enterprise value as:

“…market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.”

The theoretical value of Enterprise Value is the total takeover value of the firm. And if that is the case, then all claims on cash flows need to be included. We go the extra mile with our diligence to ensure all claims are captured in our Enterprise Value formula. For details on these adjustments and more see: Adjustments for Economic Earnings & Shareholder Value.

Note that Enterprise Value is the denominator in our Free Cash Flow Yield calculation.

Here is my formula for Enterprise Value:

Market Cap

+ Adjusted total debt (including off-balance sheet debt)

Excess cash

– Unconsolidated Subsidiary Assets

– Net Assets from Discontinued operations

+ Value of Outstanding Employee stock option liabilities

+ Under (Over) funded Pensions

+ Preferred stock

+ Minority interests

Net deferred compensation assets

Net deferred tax assets

= Enterprise Value

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