Enterprise value is a theoretical valuation metric that represents a firm's total value, including both its interest-bearing debt and equity components.
For example, a private equity firm values a target company at $4 million in enterprise value — calculated as $3.5 million in equity value plus $800,000 in net debt — which represents the total cost of acquiring the entire business, including assuming its outstanding obligations.
Why it matters: It represents the true, total price tag to acquire a company, accounting for both its equity and its existing debt obligations.
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