[lancewiggs]

their $75 billion in cash and negotiable securities compares with eBay's July 19th enterprise value of $37.5 billion, Microsoft's $188 billion, Sony's $28.5 billion and Google's $160 billion. They could buy eBay or Sony for cash.

Enterprise value is market capitalization (value of all the shares) less debt. Apple's was $316 billion on the same date.

Note - Apple is great at making awesome products, and most likely lousy, like everyone else, at taking over lousy companies.

[kamagmar]

I thought enterprise value was market cap plus debt?

[BobbyH]

Yes, enterprise value (EV) is equity market capitalization (stock price times # of shares) plus the market value of debt (this can be lower than the book value of debt). Financial analysts often prefer to calculate something called "Net Enterprise Value", which is EV minus "excess cash" (total cash minus "required cash", where required cash is usually calculated as a certain % of sales). Net Enterprise Value gives you the present value of all future cash flows to the firm (you are ignoring the value of today's excess cash, which doesn't come from future cash flows). This is particularly useful when looking at companies like AAPL with tons of cash.

[ChuckMcM]

Does enterprise value consider the uplift of actually paying cash? At $33.75 [1] EBAY has a market cap of just under $44B but to actually buy the company for cash and get everyone to tender their shares you would probably have to pay $80B+ and that would not include assumption of debt. I guess I don't get how EBAY is valued at less than their market cap.

[1] http://www.google.com/finance?q=NASDAQ:EBAY

[kcg]

As mentioned below, enterprise value is generally calculated as equity value + debt - (excess) cash. Ebay has approximately $5 billion more cash than debt, so its EV is less than its market cap.

One way to think about why cash is subtracted is that the acquirer gets to keep it. If I pay $10 billion for 100% of a company's shares, but get to keep the $1 billion in cash on the balance sheet, then the actual price of acquiring the company is only $9 billion (assuming no debt). With enough cash, it is possible to have a negative enterprise value.

EV is usually calculated with the current equity value, as that is what the market "believes" the company is worth. If an acquirer comes along and wants to purchase all of the shares at a premium, you can find an implied EV from the offer price.