What is the formula used to calculate enterprise value?

The formula to calculate enterprise value is designed to reflect the total value of a business, including both its equity and debt, while accounting for cash and cash equivalents that can reduce the net cost of acquiring the company. The correct calculation involves adding the equity value (often represented by market capitalization) and total debt (including any minority interests) to arrive at an adjusted figure that reflects the company's obligations.

From this total, cash and cash equivalents are subtracted because they are considered non-operating assets that can be used to pay down debt, thus reducing the effective purchase price of the company. This method provides a clear picture of a company's value as it incorporates both the sources of funding (equity and debt) and the liquid assets that can offset these obligations.

The other options do not accurately capture the components necessary for calculating enterprise value, which include the interplay between equity, debt, and cash on hand. For instance, simply adding assets and subtracting liabilities or using EBITDA does not represent the comprehensive valuation approach that enterprise value entails.