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total enterprise value

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NeedToQualify

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In chapter 10 it says that total enterprise value is the total market capitalisation of debt and equity. How is that interpreted though, since the purpose it to value the company?

Thanks
 
If the company has share holders and debt holders (and no one else has invested money in / lent money to the company), then the total enterprise value (TEV) represents the total value of the share holders' and the debt holders' claims on the company and hence the market's valuation of the total assets of the company.

This in contrast to the more frequently used market capitalisation, which only represents the market's valuation of the share holders' claim on the aasets of the company - i.e. the value of the company's assets, net of any long-term debt.

However, I'm not aware that that the TEV has any great significance and certainly cannot recall it ever having come up in an ST5 (or prior to that a 301) exam.
 
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