Valuation
Enterprise value
Also called EV
What it would cost to buy the whole business: market value plus debt, minus cash.
How it works
Buying every share of a company also means taking on its debts, and getting its cash. Enterprise value is the figure an acquirer actually cares about.
It makes companies with different amounts of borrowing comparable, which market capitalisation alone cannot do.
Where it misleads people
Two companies on identical P/E ratios can have very different enterprise values. The more indebted one is being valued more richly as a business, and carries more risk with it.
Formula
EV = market capitalisation + total debt − cash and equivalentsWorked example
A company with a $20bn market cap, $6bn of debt and $2bn of cash has an enterprise value of $24bn.
Related terms
- Market capitalisationWhat the market says a whole company is worth: the share price multiplied by the number of shares.
- EV/EBITDAEnterprise value divided by earnings before interest, tax, depreciation and amortisation.
- Net debtTotal borrowings minus cash — what a company would still owe if it used all its cash to repay debt.
- Capital structureThe ranking of everyone who funded a company, deciding who gets paid first if it fails.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.