EV / Enterprise value
ValuationDefinition
The total value of a business, from both equity and debt holders. Equals market capitalization plus debt minus cash. Think of it as the price you would pay to buy the entire company outright — you would pay shareholders for their stock AND assume the debt, but you would get the cash on the balance sheet.
EV is a better numerator than market cap when comparing companies with different capital structures. EV/EBITDA is the most common way to compare valuations across heavily leveraged companies (utilities, telecom) and unleveraged tech firms.
EV is a better numerator than market cap when comparing companies with different capital structures. EV/EBITDA is the most common way to compare valuations across heavily leveraged companies (utilities, telecom) and unleveraged tech firms.
Formula
EV = Market cap + Total debt − Cash & equivalents
Example
A company has 100M shares × $50 = $5B market cap. Add $2B debt, subtract $1B cash. Enterprise value = $5B + $2B − $1B = $6B. If EBITDA is $500M, EV/EBITDA = 12x.