Enterprise Value (EV)

Enterprise value is the total value of a company including both its equity and its debt, minus its cash. It represents what it would cost to buy the entire business outright. EV gives a more complete picture than market cap alone because it accounts for the debt an acquirer would inherit and the cash they would gain.

Use enterprise value as the basis for capital-structure-neutral multiples like EV/EBITDA and EV/Sales, which allow fairer comparisons between companies with different debt levels. A company with lots of debt has an EV well above its market cap, while a cash-rich firm has an EV below it. It is the preferred measure in acquisitions.

A company with a 1 billion dollar market cap, 300 million dollars of debt, and 100 million dollars of cash has an enterprise value of 1.2 billion dollars, calculated as market cap plus debt minus cash.