What is the enterprise value of a company?

The enterprise value of a company is the total value of a company to all its financial stakeholders - debt and equity holders alike. It takes into account the entire value of a company by including the market value of stocks (equity value as determined by shareholders) and net debt (debt minus cash).Cash is subtracted from debt, as it is assumed the company could pay off its debt using spare cash (whether or not it chooses to do so). This is another reason why many prospective acquirers of other companies use enterprise value - because it shows the full value of a company being acquired (the target), and takes into account the possibility of using the target's cash to pay down the inherited debt from a potential acquisition.