Total Enterprise Value (TEV)

“Total enterprise value” accounts for debt and cash in the valuation. 

Think of a real estate example.

Home value = total enterprise value

Your equity = market cap

Your mortgage = debt

If you buy a home for $500K and take out a mortgage for $400K, your equity is $100K

                          TEV = MVE + debt + preferred stock + minority interest – cash

Institutional investors will sometimes simply use “EV” of market cap + debt – cash, but the more accurate calculation is TEV. Many companies don’t have preferred stock or much minority interest, which is why many use the shorthand calculation. 

Why is minority interest added to the calculation? 

Minority interest occurs when a company owns more than 50% but less than 100% of another company. FASB requires that you consolidate the financials at and abovethe operating income line, and include an offsetting “minority interest” line belowoperating income representing the portion of financial results you owe to whoever owns the other 1% - 49%. 

The TEV/Revenue valuation multiple is what’s called an “unlevered multiple”. The P/E is a “levered multiple” because the “E” includes interest expense. 

Since the minority interest revenue is consolidated in revenue but not 100% owned, we add the minority interest to TEV for the TEV/Revenue valuation multiple. 

Why is cash subtracted from TEV? 

If you had the chance to buy either of these two companies, assuming all else were equal, the same market cap, the same EBITDA, the same profit margins, the same growth rate, which would you buy? 

           Company A has $100 million in cash, no debt

           Company B has $20 million in cash, no debt

Company A’s TEV will be lower, hence a lower TEV/EBITDA valuation multiple. You pay the same for the equity of each (same market cap), but you get more for your money with company A because you get its cash.