Enterprise value

This measure’s the total value of a business by combining the market value of equity and net debt as an estimate of what a predator would pay for it.

Suppose a firm has issued 100,000 shares currently priced at £2.50, has borrowed £75,000 in short and long-term bank loans and has cash of £25,000. The enterprise value is the firm’s market capitalisation of £250,000 (100,000 x £2.50) plus net debt of £50,000 (loans of £75,000 minus cash of £25,000), so £300,000 in total.

The cash balance is deducted because a bidder could simply use this to pay down debt – in the same way if you were buying a house, priced by the vendor at £100,000 with £5,000 cash sitting in a chest in the front room, you and your mortgage lender would value the house at £95,000 since there is little point in borrowing another £5,000 to buy the chest full of cash.

• See Tim Bennett’s video tutorial: Beginner’s guide to investing: enterprise value.

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12