What is the formula for calculating Enterprise Value (EV)?

The calculation of Enterprise Value (EV) is crucial in understanding a company's total value, particularly in the context of mergers and acquisitions, as it provides a more comprehensive picture than just market capitalization alone. The correct formula includes several key components that reflect the full value of a business.

Enterprise Value is calculated by taking the market capitalization of the company's equity, which represents the value of its outstanding shares, and then adding total debt. This accounts for the obligations that the company has to its lenders. Additionally, it includes minority interest and preferred equity, which are also part of the total interest in the company. Finally, subtracting cash and cash equivalents is critical because these assets can be used to pay down debt or be returned to shareholders, thus reflecting a more accurate valuation of the company's business operations rather than its financial structure.

In summary, the formula comprises market cap plus debt, plus any minority interest or preferred equity, minus available cash. This holistic approach ensures that all stakeholders’ claims on the company are considered in the valuation, making this option correct and comprehensive for understanding a company's total enterprise value.