Total Enterprise Value (TEV)
Candlefocus EditorThe formula for TEV is Market Capitalisation + Interest-Bearing Debt + Preferred Stock – Cash. The sum of these components creates the TEV of a business and can be used to make comparison between companies in the same or different industries.
Market capitalization is the total value of a company’s outstanding shares and represents the current value of a company on the stock market. Interest-bearing debt is the face value of debt that is listed and carries an interest rate. Preferred stock is the capital investment funded by shareholders via stock purchases and does not have voting rights, but does offer payment protection. Cash is the liquid assets held by the company at the time of valuation.
Total enterprise value is a metric used in virtually all types of business, from small family businesses to large multinational corporations. It’s used to provide a clear picture of the company’s assets in order to make informed decisions such as those involved with acquisitions. This is why exact calculations of TEV are important when considering the worth of the business.
TEV is also a useful tool in determining the fair price to pay for a business. TEV can be broken down to provide additional insights such as calculating the enterprise value per employee. This may provide a more in-depth picture of a company’s employees and better forecasts for the long-term success of the venture.
Total Enterprise Value is an important criterium that potential acquirers should consider when valuing potential targets. TEV allows potential acquirers to gain a full appreciation of the economic value, cash flow, and assets of the company. This makes acquisition decisions more accurate and helps to eliminate excess risk with a takeover.