Enterprise ValueBack to home
Some companies are fortunate enough to have large cash positions. To figure out the true value (or, for public companies, market cap) of the underlying businesses, you must take the cash into consideration. Enterprise value is an approach to understanding a public company’s value. Here’s the simplified formula:
Enterprise value = market cap + total debt – cash
Let’s use an example. As of this writing, here are Zoom’s numbers:
Market cap = ~$19 billion
Debt = $0
Cash = $5.41 billion
*Note: I included cash, cash equivalents, and marketable securities (treasuries and bonds) in the cash figure.
Here’s the enterprise value of Zoom:
$19 billion (market cap) + $0 (debt) – $5.4 billion (cash) = $13.6 billion
This means the company itself is worth $13.6 billion.
Founders and investors talk about increasing the value of a company by executing. What they really mean is they want to increase the enterprise value of the company.