Enterprise Value
Enterprise Value
The value of the whole operating business to all capital providers: equity market capitalization plus interest-bearing debt minus cash. It is what an acquirer would pay to own the company free of its cash and debt, and the numerator of every EV multiple.
When to use: Use to compare companies with different capital structures, since EV is indifferent to how the business is financed, and as the starting point for EV/EBITDA, EV/EBIT and EV/Sales.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| EV | Enterprise Value | Market cap + debt − cash | $ |
| MarketCap | Market Cap | Equity market capitalization | $ |
| Debt | Total Debt | Interest-bearing debt | $ |
| Cash | Cash & Equivalents | Cash and short-term investments | $ |
Real-Life Examples
Example 1: Leveraged Industrial
Market cap $5,000M, debt $2,000M, cash $500M.
Given
Step-by-Step
The business is worth $6.5B to all its capital providers, 30% more than its equity alone. Buying the equity means also taking on $1.5B of net debt.
Example 2: Net-Cash Software Company
Market cap $800M, debt $50M, cash $250M.
Given
Step-by-Step
Net cash pulls EV below market cap: an acquirer pays $800M for the shares but gets $200M of net cash back, so the operating business costs $600M.
Frequently Asked Questions
Cash is not part of the operating business; a buyer effectively gets it back at closing. Subtracting it prices only the operations.
Preferred stock, minority interests and often lease liabilities are added like debt, since they are claims senior to common equity. This formula uses the basic three-term version.