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Valuation

Enterprise Value

Also known as: EV, TEV, Total Enterprise Value

Enterprise value (EV) is the total value of a business to all its investors, calculated as equity value plus net debt, and it is the basis for most valuation multiples.

Enterprise value (EV) represents what it would cost to acquire an entire business, including the claims of both shareholders and lenders. It is calculated as equity value (market capitalization) plus total debt, minus cash and cash equivalents.

Why it matters more than market cap

Two companies can have the same market capitalization but very different enterprise values if one carries heavy debt and the other holds large cash balances. Because EV captures the whole capital structure, it is the figure used in the most common valuation multiples, such as EV/EBITDA and EV/Revenue.

Equity value vs enterprise value

Equity value is what belongs to shareholders alone. Enterprise value is the value of the operating business regardless of how it is financed. Moving between the two requires adding or subtracting net debt, which is exactly the adjustment buyers make in a cash-free, debt-free deal.

Related terms

EV/EBITDA Multiple

The EV/EBITDA multiple divides enterprise value by EBITDA, showing how many dollars investors pay for each dollar of operating profit, independent of capital structure.

Market Capitalization

Market capitalization is the total value of a company’s outstanding shares, calculated as share price times shares outstanding.

Net Debt and Debt-Like Items

Net debt is a company’s total debt plus debt-like items minus its cash, and it is deducted from enterprise value to determine the price actually paid to equity holders.

Comparable Company Analysis

Comparable Company Analysis, often called comps, values a company by applying the valuation multiples of similar public companies to its own financial metrics.

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