Term · Valuation
Enterprise Value
In briefEnterprise value assesses the operating business from the perspective of all capital providers, combining the equity value with the net financial position and similar claims. For small caps with differing levels of debt, it is often more meaningful than market capitalization.
Definition
Enterprise value is an analytical value of the operating business for all capital providers. It combines the market value of equity with the net financial position and further claim-like items.
How it is calculated
Formula. Typically: market capitalization + financial debt + minority interests + further equity-like claims − cash and non-operating financial assets.
Why it matters for small caps
Many small caps have very different levels of debt, cash positions, and capital structures, which often makes enterprise value more meaningful than market capitalization alone.
Common misreadings
- A simplified formula can omit leases, pension deficits, minorities, or excess financial assets. The bridge must match the earnings metric used.
In the process
Frequently asked
What is enterprise value?
It is a total value of the operating business from the perspective of all capital providers. In addition to equity, financial debt and further claims are included.
How is enterprise value determined?
You add financial debt, minorities, and equity-like claims to market capitalization and subtract cash as well as non-operating financial assets. This makes different capital structures comparable.
Which items are often overlooked in enterprise value?
A simplified formula easily omits leases, pension deficits, minorities, or excess financial assets. The reconciliation must also match the earnings metric used.
Related terms
Sources
Primary
NYU Stern – Aswath Damodaran, Valuation Resources
https://pages.stern.nyu.edu/\~adamodar/
https://pages.stern.nyu.edu/\~adamodar/
Methodology
IFRS Foundation – IFRS 3 Business Combinations
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-combinations/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-combinations/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.