Enterprise value is the total economic value of a company, calculated as its market capitalization plus debt minus cash. It represents what someone would theoretically need to pay to buy the entire company. It is useful for comparing companies with different capital structures, since it factors in both equity and debt financing.
A company has a market capitalization of $200 million, total debt of $50 million, and cash reserves of $10 million. Its enterprise value is $200 plus $50 minus $10, which equals $240 million. This figure better reflects the true cost of acquiring the company than market cap alone, since a buyer would assume the debt and gain the cash.
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