What does enterprise value equal?

Enterprise value represents the total value of a company, encompassing not just its equity but also its debt and other financial interests, while subtracting cash and cash equivalents that can be used to reduce financial obligations. The formula described by the correct choice captures this comprehensive view of corporate value.

By adding equity value to debt, preferred equity, and minority interest, you gain a complete picture of the company’s obligations and ownership interests. This reflects what an acquirer would need to pay to take over the entire enterprise, since these elements represent the total financial claims against the company.

Cash and cash equivalents are subtracted because they are readily available resources that can offset the costs incurred by these financial claims. This means that while debt and other claims may aggregate to a certain amount, the presence of cash reduces the actual outlay required for acquisition, thereby providing a net measure of the enterprise value.

Understanding enterprise value is crucial in finance, especially in contexts such as mergers and acquisitions or when assessing a firm's total valuation beyond just stock price alone.