A company has a Market Cap of $500mm, Debt of $700mm, and Cash of $200mm. What is its Enterprise Value?
Enterprise Value = Market Cap + Debt − Cash = $500mm + $700mm − $200mm = $1,000mm, representing the total price to acquire the business after assuming its debt and netting out its cash.
Intuition
Enterprise Value represents the total price to acquire the entire business. You must pay equity holders (Market Cap) and take on the company's debt obligations, but you get to keep the cash on the balance sheet, so it offsets the cost. It strips out capital structure to give a capital-structure-neutral valuation.
Watch
A common follow-up is: 'Why do we subtract cash but add debt?' The key insight is that an acquirer inherits the debt (increasing cost) but also inherits the cash (which can immediately pay down that debt or offset the purchase price). Another trap: interviewers may ask about Preferred Stock or Minority Interest, which also get added to EV.
Deep Dive
Calculate Enterprise Value given Market Cap, Debt, and Cash.
Formula:
Calculation:
Intuition: Enterprise Value is the price a buyer would effectively pay to acquire the entire business. You pay equity holders (Market Cap), assume the company's Debt (so you add it), but you pocket the Cash sitting on the balance sheet (so you subtract it). Think of it as: you buy the house (equity), take over the mortgage (debt), but find cash in the safe (cash you net out).