What is the formula for calculating Enterprise Value?

The formula for calculating Enterprise Value (EV) is accurately represented by the option that includes the comprehensive components of a company's overall value. EV is designed to represent the total value of a business, incorporating not only its equity but also its debts and any additional claims on its assets.

The correct option includes the company's Equity Value—reflecting the market capitalization—along with Total Debt, which encompasses both long-term and short-term debt obligations. Additionally, it factors in Preferred Stock, which, like debt, entails obligations to pay fixed dividends and hence should be accounted for in a complete valuation. It also considers Minority Interest, which represents the portion of subsidiaries not owned by the parent company, as these are also claims on the consolidated company’s value.

The subtraction of Cash is vital because cash and cash equivalents are non-operational assets that can be used to pay down debt, thus reducing the effective purchase price of the company. By including these elements in the formula, one accurately represents the true economic value of the overall enterprise without misleadingly inflating it through unliquidated assets.

In contrast, other options either miss certain components necessary for a complete valuation or do not appropriately adjust for cash, which is essential to understand the net worth of the enterprise to