As a recap, the market capitalization or market cap is just:
No. of shares x shares outstanding
Using a simple analogy, the price per share is the price of a slice of pizza if it is sold individually. The market capitalization is the price of the whole pizza (i.e. price of each pizza slice x total number of pizza slices).
WHAT IS ENTERPRISE VALUE?
Enterprise value or EV is a measure of a company’ total value.
It is a much more accurate measure than just using the share price or market capitalization.
Enterprise value provides an even more accurate measure because it includes in the price the debt, minority interest, preferred shares and subtracts out the total cash and cash equivalents.
HONING IN ON THE DEBT
Minority interest and preferred shares tend to be less significant so we are going to ignore that for now and focus on the debt and cash element …