In one sentenceThe full value of the business's operations as a buyer sees it: equity value plus debt minus available cash.
Simply put
Whoever buys a business does not pay only for the shares; they also inherit its debt, and in return benefit from the cash in its till. That is why debt is added and cash is subtracted.
Enterprise value helps you when comparing businesses with different financing structures: a debt-free business and a heavily indebted one may have equal operating value even though their owners' shares are worth different amounts.
Worked example
An investor is considering buying a food distribution company: the agreed value of its owners' shares is 10,000,000 SAR, it has financing of 4,000,000 SAR, and its accounts hold cash of 1,000,000 SAR.
Equity value10,000,000 SAR
+ Debt4,000,000 SAR
− Cash and cash equivalents1,000,000 SAR
Enterprise value = 10,000,000 + 4,000,000 − 1,000,00013,000,000 SAR
Formula: Equity value + debt − cash and cash equivalents
Don't confuse it with
Book valueBook value is a figure from the books at cost; enterprise value is an estimate of what would actually be paid for the business today.