enterprise value (ev), total enterprise value (tev), or firm value (fv) is an economic measure reflecting the market value of a whole business. it is a sum of claims of all claimants: creditors (secured and unsecured) and equityholders (preferred and common). enterprise value is one of the fundamental metrics used in business valuation, financial modeling, accounting, portfolio analysis, etc. ev is more comprehensive than market capitalization (market cap), which only includes common equity.definition of 'enterprise value - ev' ==ev equation== : enterprise value = :: common equity at market value (this line item is also known as "market cap") :: + debt at market value (here debt refers to interest-bearing liabilities, both long-term and short-term) :: + minority interest at market value, if anyvalue multiples :: + preferred equity at market value :: + unfunded pension liabilities and other debt-deemed provisions :: - cash and cash equivalents :: - "extra assets", assets not required to run the business :: - investments in associated companies at market value, if any ==comments on basic ev equation== *all the components particularly relevant in liquidation analysis, since using absolute priority in a bankruptcy all securities senior to the equity have par claims. generally, also, debt is less liquid than equity so that the "market price" may be significantly different from the price at which an entire debt issue could be purchased in the market. in valuing equities, this approach is more conservative. *cash is subtracted because when it is paid out as a dividend after purchase, it reduces the net cost to a potential purchaser. therefore, the business would cost that much less to start with. the same effect is accomplished when the cash is used to pay down debt. *value of minority interest is added because it reflects the claim on assets consolidated into the firm in question. *value of associate companies is subtracted because it reflects the claim on assets consolidated into other firms. *ev should also include such special components as unfunded pension liabilities, employee stock option, environmental provisions, abandonment provisions, and so on, for they also reflect claims on the company's assets. ==intuitive understanding of enterprise value== *a simplified way to understand the ev concept is to envision purchasing an entire business. if you settle with all the security holders, you pay ev. *counter-intuitively, increases or decreases in enterprise value do not necessarily correspond to "value creation" or value destruction". any acquisition of assets (whether paid for in cash or through share issues) will increase ev, whether or not those assets are pr
Fundamental_analysis Mathematical_finance