Investing term
What is Enterprise value (EV)?
Market cap + total debt − cash. The 'takeover price' of the whole business, regardless of how it's financed.
Enterprise value (EV) is what it would cost to buy an entire business: its market capitalisation plus total debt, minus cash on hand. It values the whole company regardless of how it's financed, which makes it fairer than market cap alone for comparing firms with different debt loads.
The logic is that a buyer taking over a company would assume its debt (so add it) but could use its cash to help pay (so subtract it). That gives the true 'takeover price' of the business itself, separate from its capital structure. Because market cap ignores debt and cash, two companies with identical operations but different debt can have the same market cap yet very different enterprise values — and EV corrects for that. It's the numerator in capital-structure-neutral multiples like EV/EBITDA and EV/sales, which is why analysts reach for it when comparing businesses across different levels of leverage.
Enterprise value is market cap plus debt minus cash — the true cost of buying the whole business, regardless of financing. It's the fairer basis for comparing firms with different debt loads.
For example
A company with a $1B market cap, $300M of debt, and $100M of cash has an enterprise value of $1.2B — the true cost of taking over the whole business.
Learn it by doing
That's Enterprise value (EV) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
Enterprise value matters because it measures the whole business rather than just the equity slice, correcting for the distortion that debt and cash introduce into market cap. Comparing two companies on market cap alone can mislead when one is loaded with debt and the other flush with cash; EV puts them on equal footing. It's the foundation of the capital-structure-neutral multiples analysts use to compare companies fairly across different financing setups.
⚠ Comparing companies on market cap alone
Market cap ignores debt and cash, so two businesses with identical operations can look equally priced by market cap while one carries heavy debt and the other holds a cash pile. Judging or comparing companies on market cap alone misses that difference in the true cost of the business. Enterprise value, which adds debt and subtracts cash, is the fairer basis for comparison.