Glossary
Enterprise Value (EV)
The theoretical takeover price of a firm — equity value plus net debt.
Enterprise Value = Market Cap + Total Debt + Preferred Equity + Minority Interest − Cash and Cash Equivalents. It represents the theoretical price an acquirer would pay to own the whole business, debt and all, net of the cash that comes with it.
EV is the right numerator for valuation multiples that use pre-interest profit metrics, because both numerator and denominator then ignore capital structure. EV/EBITDA and EV/Sales are the standard examples.
Two firms with identical market caps can show very different enterprise values once debt is added — a useful corrective when comparing leveraged businesses against debt-free peers.