Enterprise Value vs Market Cap: Debt Changes the Price

Enterprise value (EV) is the total cost of buying an entire business, its market value plus debt, minus cash. EBITDA is earnings before interest, taxes, depreciation and amortisation, a measure of core operating profit. Dividing EV by EBITDA gives a valuation multiple that lets you compare companies regardless of how they are financed.

Enterprise value: the true takeover price

Market capitalisation only counts the equity. Enterprise value adds the debt a buyer would inherit and subtracts the cash they would gain, giving the real economic price of owning the whole company. Two firms with the same market cap can have very different enterprise values.

Think of it from the perspective of an acquirer. When you buy a company outright, you take on its debts as well as its shares, but you also get to keep the cash already sitting on its balance sheet, which you can use to pay down some of that debt. EV captures this netting in a single number: market cap plus total debt minus cash and equivalents. A debt-laden company can look cheap on market cap alone yet carry a much heavier true price once its borrowings are added in.

Worked example. A company has a $1,000m market cap, $300m of debt and $100m of cash. EV = 1,000 + 300 − 100 = $1,200m. If EBITDA is $150m, the EV/EBITDA multiple is 8×.

Why EV/EBITDA is popular

Because it strips out financing and accounting choices, EV/EBITDA compares the underlying operating value of businesses on a like-for-like basis, useful across companies with different debt levels and tax situations. A lower multiple can flag a cheaper business, all else equal.

The numerator and the denominator are deliberately matched: enterprise value reflects what all providers of capital, both shareholders and lenders, are owed, while EBITDA is the operating profit available to pay them before any financing or tax effects. That consistency is why analysts reach for EV/EBITDA when comparing a lightly indebted company with a heavily leveraged one, or a firm in a high-tax country with one in a low-tax one. It is one of the first multiples to check when you are working through how to find undervalued stocks, alongside the price-to-earnings ratio.

Use it with care

EBITDA ignores the real costs of capital spending and interest, so it can flatter capital-intensive or heavily indebted companies. Pair EV/EBITDA with free cash flow and debt analysis rather than relying on it alone.

A business that must constantly reinvest in plant and equipment, a telecom operator or a manufacturer, say, looks healthier on EBITDA than on the cash it actually keeps, because depreciation is added back even though the spending it represents is real and recurring. The same is true of interest: a company can post strong EBITDA yet still struggle to service its debt. The disciplined value-investing habit is to treat EV/EBITDA as a starting screen, then confirm with free cash flow, the level of enterprise value relative to earnings, and the trend in net debt before drawing any conclusion. For the broader framework, see our guide to what value investing is and the EV/EBITDA glossary entry.

Written by

Federico Romaldi

Co-Founder, Worthmap

Published: June 6, 2026

Federico is a co-founder of Worthmap, a wealth-intelligence platform built for serious investors. With a background in software engineering and a long-standing passion for value investing, he created Worthmap to bridge the gap between net-worth tracking and investment analysis.