The house that taught me enterprise value(1 min read)

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This is post 1 of 6 in the series “Finance 101”

  1. The house that taught me enterprise value(1 min read)
  2. The three prices of a house
  3. Revenue is vanity, profit is sanity
  4. Follow the cash
  5. The price tag on earnings
  6. How much of the house is mortgaged

the share price tells you what the stock costs. the enterprise value tells you what the company costs. never confuse the two.

A house listed at $500,000 — that’s the market cap, the price of all the shares.

It comes with a $200,000 mortgage you’d take over — that’s the company’s debt. Add it.

There’s $30,000 cash in a safe inside — that’s the company’s cash. Subtract it; it comes to you.

$500k + $200k − $30k = $670,000. That’s the enterprise value: market cap plus debt minus cash. What the whole company really costs.