Enterprise Value Formula is an economic measure that reflects the entire value of the Business including the secured and unsecured creditors and the equity and preference shareholders of the company and is more often used in acquiring other businesses or merging two or more companies to generate synergy.

## 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 calculated 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.

** 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.

#### 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:

- EV Formula = 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

#### 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:

- EV Formula = 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 Calculator

You can use the following Enterprise Value 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

The importance of enterprise value 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 can be used by the acquirer to compare returns from different businesses in which he/she intends to buy controlling stakes.

### Calculate Enterprise Value in Excel

Let us take the case of Apple Inc. mentioned in EV 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 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. 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 –