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Thursday, September 15, 2011

What is the enterprise value of a company?

Enterprise value is nothing but the theoretical takeover price of a company. It is a better way to find the worth of a company than the market capitalization.
Enterprise Value= Market Capitalization+ Debt+ Minority Interest +Preferred Shares-Cash & Cash Equivalents
When ABC inc. shall buy the XYZ inc. it shall have to pay the debt and pay preference share holders in case of the liquidation, while it shall own the cash & cash equivalents of the XYZ Inc.

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