Definition
Enterprise Value (EV)
Enterprise value is the total value of a business, its market cap plus debt minus cash, representing the cost to acquire the whole company.
EV = Market Capitalisation + Total Debt minus Cash & Equivalents. It reflects what a buyer would effectively pay to own the entire business, since the acquirer takes on its debt but gains its cash. EV is the numerator in EV/EBITDA.
Unlike market cap (equity only), EV captures the whole capital structure, making it better for comparing companies with different debt levels. A debt-laden firm can have a small market cap but a large EV, revealing its true size and risk.
Related terms
- Market CapitalizationMarket capitalisation is the total market value of a company's shares, calculated as share price multiplied by the number of shares outstanding.
- EV/EBITDAEV/EBITDA compares a company's enterprise value to its earnings before interest, tax, depreciation, and amortisation, a capital-structure-neutral valuation measure.
- Debt-to-Equity RatioThe debt-to-equity ratio compares a company's total borrowings to its shareholders' equity, gauging how leveraged (and risky) its balance sheet is.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.