What is the equation to calculate Enterprise Value?

Enterprise Value (EV) is a comprehensive measure that reflects the total value of a business, taking into account its equity and debt, while factoring in cash and other non-operating components. The correct equation to calculate Enterprise Value is the sum of the market value of equity, total debt, preferred stock, and minority interest, with cash deducted.

The inclusion of market value of equity represents the owners' claim to the business, whereas debt signifies the claims of creditors. Preferred stock is included as it has a claim senior to common equity but is subordinate to debt in terms of capital structure. Minority interest accounts for ownership in subsidiary companies that are not wholly owned by the parent. Cash is subtracted because it is a non-operating asset and can be thought of as a source of funds available to pay down debt.

This equation provides a clear picture of the company's value as it reflects not just the equity but all sources of capital utilized in the operations, which is essential for valuation, especially in merger and acquisition scenarios.

Other options present definitions or components not directly related to the comprehensive calculation of Enterprise Value. For instance, one option cites total assets minus total liabilities, which is more aligned with calculating net asset value rather than EV. Another option involving net income and adjustments