Enterprise Value (EV)
Quick Definition
The total value of a company including market cap, debt, and cash, representing the true acquisition cost.
What Is Enterprise Value (EV)?
Enterprise Value (EV) represents the total value of a company—what it would cost to acquire the entire business. It's considered more comprehensive than market cap because it accounts for debt and cash positions.
Formula: EV = Market Cap + Total Debt - Cash and Cash Equivalents
Why EV Matters:
- Reflects true acquisition cost (buyer assumes debt, gets cash)
- Enables comparison of companies with different capital structures
- Foundation for EV/EBITDA and EV/Revenue ratios
- More accurate than market cap for M&A analysis
EV-Based Multiples:
- EV/EBITDA: Most popular, typically 6-12x for healthy companies
- EV/Revenue: Useful for unprofitable growth companies
- EV/EBIT: Accounts for depreciation differences
Example: Company with:
- Market Cap: $10 billion
- Total Debt: $3 billion
- Cash: $1 billion
- Enterprise Value = $10B + $3B - $1B = $12 billion
An acquirer would need $12B to buy the company (pay $10B to shareholders, assume $3B debt, receive $1B cash).
Formula
Formula
EV = Market Cap + Debt - CashTry Calculator
Related Terms
Market Capitalization
The total market value of a company's outstanding shares, calculated by multiplying share price by total shares outstanding.
EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
A widely used profitability metric that strips out financing, tax, and non-cash capital costs to approximate operating cash generation.
EV/EBITDA
A valuation multiple comparing enterprise value to earnings before interest, taxes, depreciation, and amortization—useful for comparing companies with different capital structures.
Revenue
The total amount of money a company earns from its business activities before any expenses are deducted, also called sales or top line.
Net Income
A company's total profit after all expenses, taxes, and costs have been deducted from revenue—the "bottom line" of the income statement.
Balance Sheet
A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time, following the equation Assets = Liabilities + Equity.
Expand Your Financial Vocabulary
Explore 130+ financial terms with definitions, examples, and formulas
Browse Fundamental Analysis Terms