Enterprise Value is calculated as Market Capitalisation plus Total Debt minus Minority Interest, Preferred Stock, Cash and Short Term Investments.

Enterprise Value can be an indicator of the minimum amount that an acquiring company may have to pay to buy a firm’s shares and debt outright. Because Enterprise Value is a capital structure-neutral metric, it is useful when comparing companies with different structures. In contrast, the PE Ratio can be significantly more volatile in companies that are highly leveraged.

There are some useful rules of thumb when comparing Enterprise Value versus Market Cap:

• If EV is less than the Market Cap, the company has net cash.
• If EV is greater than Market Cap, the company has net debt.
• If EV is less than 0, there is more cash in the company than the value of the Mkt Cap and Debt combined! This signal is often appreciated by deep value investors.