How do you calculate a stock's enterprise value (EV)?

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by mikel , in category: Stocks and Equities , 10 months ago

How do you calculate a stock's enterprise value (EV)?

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1 answer

by tess.kassulke , 9 months ago

@mikel 

To calculate a stock's enterprise value (EV), you need to consider several factors:

  1. Start with the market capitalization (market cap) of the stock, which represents the total value of the company's outstanding shares. You can find this information on financial websites or by multiplying the stock's current price by the number of outstanding shares.
  2. Add the company's total debt, which includes both long-term and short-term debt. This information can usually be found in the company's financial statements or annual report.
  3. Subtract cash and cash equivalents from the sum obtained in step 2. Cash and cash equivalents are readily available assets that can be used to pay off debts or reinvest in the business. You can find this figure on the company's balance sheet.


The formula for calculating enterprise value (EV) is:


EV = Market Capitalization + Total Debt - Cash and Cash Equivalents


Keep in mind that enterprise value is a measure of a company's total value, including its equity and debt. It provides a clearer picture of a company's valuation compared to market capitalization alone, as it considers the debt obligations and cash on hand.