Enterprise value

Enterprise value is the theoretical total cost of buying an entire company outright. It starts from market capitalisation and adjusts for the debt and cash on the balance sheet, since a buyer would have to take on the company's debt but could use its cash to help pay for the purchase.

The formula is: Market cap + Total debt - Cash and equivalents.

Enterprise value gives a more complete picture of a company's true size than market cap alone. Two companies can have identical market caps while one carries heavy debt and the other holds a large cash pile. Enterprise value reflects that difference, which is why it is used instead of market cap in several other ratios.