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2. ENTERPRISE VALUE A firm’s enterprise value is equal to the market value of its debt...

2. ENTERPRISE VALUE A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly of interest to potential purchasers of the firm. Why?

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Answer #1

Enterprise value includes debt in the calculation of a company's value. It is a more accurate reflection because of inclusion of debt. The purchaser needs to take over the debt obligations of the company as well. It will take over the debt but also keep cash. This provides a more accurate picture and is different from market capitilization.

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