Valuation Tutorials

- Valuation Basics
- Enterprise Value
- Enterprise Value Formula
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- Equity Value Formula
- Market Capitalization
- Market Capitalization Formula
- Internal Growth Rate Formula
- Intrinsic Value Formula
- Absolute Valuation Formula
- Assessed Value vs Market Value
- Required Rate of Return Formula
- Historical Cost vs Fair Value
- Large Cap vs Small Cap
- Free Float Market Capitalization
- Market Cap vs Enterprise Value
- Book Value Vs Market Value
- Value vs Growth Stocks
- Book Value Per share
- Fair value vs Market value

- Discounted Cash Flows
- Going Concern concept
- Dividend Discount Model (DDM)
- Gordon Growth Model
- Gordon Growth Model Formula
- Discounted Cash Flow Analysis (DCF)
- DCF Formula (Discounted Cash Flow)
- Free Cash Flow Formula (FCF)
- Free Cash Flow to Firm (FCFF)
- Free Cash Flow to Equity (FCFE)
- Terminal Value
- Terminal Value Formula
- Cost of Equity
- Cost of Equity Formula
- Risk-Free Rate
- Sustainable Growth Rate Formula
- Beta in Finance
- Beta Formula
- CAPM Beta
- Stock Beta
- Calculate Beta Coefficient
- Unlevered Beta
- Market Risk Premium
- Market Risk Premium Formula
- Equity Risk Premium
- Risk Premium formula
- Weighted Average Cost of Capital (WACC)
- Cost of Capital Formula
- WACC Formula
- Security Market Line (SML)
- Systematic Risk vs Unsystematic risk
- Free Cash Flow (FCF)
- Free Cash Flow Yield (FCFY)
- Mistakes in DCF
- Treasury Stock Method
- CAPM Formula
- Cash Flow vs Free Cash Flow
- Business Risk vs Financial risk
- Business Risk
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- Valuation Multiples
- Equity Value vs Enterprise Value
- Trading Multiples
- Comparable Company Analysis
- Transaction Multiples
- (Price Earning Ratio (P/E)
- PE Ratio formula
- PEG Ratio Formula
- Price to Cash Flow (P/CF)
- Price to Book Value Ratio (P/B)
- Price To Book Value formula
- Price Earning Growth Ratio (PEG)
- Trailing PE vs Forward PE
- Forward PE
- EV to EBITDA Multiple
- EV to EBIT Ratio
- EV to Sales Ratio
- EV to Assets

- Other Valuation Tools
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Related Courses

**Formula of Enterprise Value (Table of Contents)**

- What is Enterprise Value Formula?
- Examples of Enterprise Value Formula
- Enterprise Value Formula Calculator

## What is Enterprise Value Formula?

The enterprise value of a company can be ideally defined as an amount that represents the entire cost of the company in case some investor intends to acquire 100% of it. The formula for enterprise value is computed by adding the company’s market capitalization, preferred stock, outstanding debt, and minority interest together, and then deducting the cash and cash equivalents obtained from the balance sheet. The cash and cash equivalents are deducted from the enterprise value since post acquisition of the complete ownership of the company, the cash balance basically belongs to the new owner. Mathematically, it is represented as,

Enterprise value Formula = Market Capitalization + Preferred stock + Outstanding Debt + Minority Interest – Cash & Cash Equivalents

**Step by Step Application of Enterprise Value Formula**

The Calculation of Enterprise Value equation can be done in the following six simple steps:

** Step 1:** Firstly, the current price per share of the company has to be found out from the stock market and then the number of paid-up equity shares has to be collected from the balance sheet. Now, the current market capitalization of the stock can be derived by multiplying the current price per share with the outstanding number of paid-up equity shares.

** Step 2:** Now, the current value of the preferred stock is computed by multiplying par value of the stock with the number of outstanding preference shares which are both available in the balance sheet.

** Step 3:** Now, the current outstanding debt balance is calculated by adding financial liabilities like bank loans and corporate bonds which are again available in the balance sheet.

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** Step 4:** Now, the minority interest is captured as reported in the balance sheet.

** Step 5: **Now, the cash and cash equivalents are computed by adding the cash balance and fixed deposits and current account deposits with banks which are again mentioned in the balance sheet under current asset section.

** Step 6:** Finally, the enterprise value is arrived at by adding the values derived in Step1-4 and deducting the value in Step 5 as shown below,

**Examples of Enterprise Value Formula**

Let’s take a few simples to advanced examples to understand Enterprise Value Equation.

### Enterprise Value Formula** – **Example #1

Let us assume that a company ABC Limited has the following financial information:

- Shares Outstanding: 2,000,000
- Current Share Price: $3
- Total Debt: $3,000,000
- Total Cash: $1,000,000

Therefore, given

- Market capitalization = 2,000,000 * $3 = $6,000,000
- Preferred stock = $0
- Outstanding debt = $3,000,000
- Minority interest = $0
- Cash and cash equivalents = $1,000,000

Based on the above formula, calculation of the enterprise value of ABC Limited can be as follows:

- Enterprise value Equation = Market capitalization + Preferred stock + Outstanding debt + Minority interest – Cash and cash equivalents
- Enterprise value = $6,000,000 + $0 + $3,000,000 + $0 – $1,000,000
- Enterprise value = $8,000,000 or $8 million

### Enterprise Value Formula – Example #2

Let us take the real life example of Apple Inc.’s annual report as on September 29, 2018. The following information is available:

Therefore, given

- Market capitalization (millions) = 4,754.99 * $225.74 = $1,073,391
- Preferred stock = $0
- Outstanding debt (millions) = $11,964 + $102,519 = $114,483
- Minority interest = $0
- Cash and cash equivalents (millions) = $25,913

Based on the above formula, calculation of the enterprise value of Apple Inc. can be as follows:

- Enterprise value Equation = Market capitalization + Preferred stock + Outstanding debt + Minority interest – Cash and cash equivalents
- Enterprise value
_{Apple Inc.}(millions) = $1,073,391 + $0 + $114,483 + $0 – $25,913 - Enterprise value
_{Apple Inc. }(millions) = $1,161,961 - Therefore, Apple Inc.’s enterprise value as on September 29, 2018 stood at around $1,161.96 billion or 1.16 trillion.

### Enterprise Value Formula Calculator

You can use the following Enterprise Value Formula Calculator.

Market Capitalization | |

Preferred Stock | |

Outstanding Debt | |

Minority Interest | |

Cash and Cash Equivalents | |

Enterprise Value Formula = | |

Enterprise Value Formula = | Market Capitalization + Preferred Stock + Outstanding Debt + Minority Interest - Cash and Cash Equivalents | |

0 + 0 + 0 + 0 - 0 = | 0 |

### Relevance and Use of Enterprise Value Formula

The importance of enterprise value equation revolves around the fact that it helps in the assessment of the worth of a company. Further, the enterprise value can also be seen as the theoretical takeover price of a company, which is to be acquired, since it accounts for the impact of the outstanding debt as well as the cash balance that is also taken over by the acquirer during the transaction. Although the acquisition of the outstanding debt increases the cost of acquisition, the acquisition of the available cash balance moderates the cost of acquisition to some extent.

Given that the debt portion is included in enterprise value, it enables comparison of companies with different capital structures which eventually helps in the decision of acquisition. Enterprise value equation can be used by the acquirer to compare returns from different businesses in which he/she intends to buy controlling stakes.

### Enterprise Value Formula in Excel (with excel template)

Let us take the case of Apple Inc. mentioned in Enterprise Value Formula Example #2 to demonstrate in excel template the working towards the calculation of the Enterprise Value:

In below template is the data of Apple Inc for September 2018 to calculate its Enterprise Value.

In the below given excel template, we have used the calculation of Enterprise Value Equation to find the Apple Inc.’s Enterprise Value.

**So the Calculation of Enterprise Value will be:-**

### Recommended Articles:

This has been a guide to Enterprise Value Formula. Here we discuss its uses along with simple to advanced practical examples to understand Enterprise Value Equation. Here we also provide you with Enterprise Value Formula Calculator with downloadable excel template. You can learn more about Excel Modeling from the following articles –

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