The enterprise value is the true price we must pay for a company. It includes the market cap, which is the share price multiplied by the number of shares on issue. The market cap alone can mislead because it ignores other costs borne by the owner. The enterprise value also examines the balance-sheet and off-balance-sheet items. It rewards companies for cash, and it penalizes companies for debt, preferred stock, minority interests, and off-balance-sheet debts. These are all real costs paid by the owner.
