Size
Enterprise Value
Enterprise value is the price of the whole firm, equity and net debt together.
If you bought every share and also took responsibility for the debt, then kept the cash, the net amount is enterprise value. It is the right numerator for EV/EBITDA and EV/Sales because those denominators belong to all capital providers, not only shareholders. Two companies with the same market cap and very different debt loads have different enterprise values and should.
Cash reduces enterprise value. A firm sitting on a huge net cash pile can have an enterprise value well below its market cap, which makes cash-flow multiples look richer than the equity multiples suggest. Check that the cash is truly surplus and not trapped or needed for operations before you treat it as a discount.
Formula
Enterprise value = market cap + debt + preferred equity + minority interest − cash
Live example
Apple Inc. (AAPL) last printed at $345.33 with a market cap of $5.04T. Use the market cap as the equity piece of enterprise value. Add debt and subtract cash from the balance sheet before you trust an EV multiple.
Related
Market Cap · EV/EBITDA · Debt to Equity
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Questions
Can enterprise value be below market cap?
Yes, when cash exceeds debt. The equity is partly a cash box.
Is minority interest included?
Standard enterprise value includes it, because that portion of subsidiaries is not yours. Data providers differ on the small items. Know the definition you are using.