How to calculate enterprise value
The formula for calculating enterprise value (EV) is as follows:
- EV = MC + Total Debt-Cash
MC is market cap (the current share price multiplied by total shares outstanding). Total debt includes both short- and long-term debt and borrowings. Cash is all liquidity available to a company, including short-term cash equivalents but excluding long-term marketable securities.
Here is an example of how to calculate enterprise value using Tesla (TSLA +4.15%). Based on the company's share price on Sept. 20, 2021, and number of shares outstanding at the end of the second quarter of 2021, Tesla's market cap stood at $730 billion. At the end of the second quarter, the company reported total debt of $9.4 billion and cash and equivalents of $16.2 billion. Tesla's enterprise value can be calculated as follows:
- EV = $730 billion + $9.4 billion-$16.2 billion = $723 billion