Enterprise Value
Enterprise value, or EV, is the total value of a company to all its capital providers. It equals market capitalisation plus total debt, minus cash and cash equivalents. EV represents the theoretical price to acquire the whole business: a buyer assumes its debt but gains its cash, so cash is subtracted. It is widely used to compare companies regardless of how they are financed.
Worked example
A company has a market capitalisation of $800 million, total debt of $200 million, and cash of $50 million. Enterprise value = $800,000,000 + $200,000,000 − $50,000,000 = $950,000,000.
Why it matters
Enterprise value matters because it captures what it would really cost to buy a business, making it more complete than market capitalisation alone for comparing firms with different debt levels. It is the numerator in capital-structure-neutral multiples such as EV/EBITDA. A common pitfall is forgetting items beyond simple debt and cash, such as minority interests and preferred stock, which should be added to get a fully accurate figure.
Frequently asked questions
How is enterprise value different from market capitalisation?
Market capitalisation only counts the value of equity, while enterprise value also adds debt and subtracts cash. EV therefore reflects the cost to buy the entire business, not just its shares.
Can enterprise value be lower than market cap?
Yes. If a company holds more cash than debt, its net cash position reduces EV below its market capitalisation. This is common for cash-rich firms with little or no borrowing.
Related terms: EV/EBITDA, Free Cash Flow