What Is Enterprise Value?
What is enterprise value? Enterprise value (EV) is the total value of a company from the perspective of an acquirer. It equals the market value of equity (market cap) plus total debt, minus cash and cash equivalents. EV represents the theoretical takeover price—what you would pay to own the entire business, assuming its debt and receiving its cash.
Unlike market cap, which only reflects equity value, EV includes debt (which an acquirer must assume) and subtracts cash (which the acquirer receives). That makes EV a better measure of total firm value for valuation and for comparing companies with different capital structures.
Enterprise Value Formula
The enterprise value formula is:
EV = Market Cap + Total Debt − Cash (and Cash Equivalents)
Or: EV = Market Cap + Net Debt, where Net Debt = Total Debt − Cash. Market cap = shares outstanding × stock price.
Example: Market cap $8 billion, total debt $2 billion, cash $1 billion → EV = $8B + $2B − $1B = $9 billion.
How to Calculate Enterprise Value
How to calculate enterprise value: Get market cap (shares outstanding × stock price—often shown on finance sites). Get total debt from the balance sheet (short-term + long-term debt). Get cash and cash equivalents from the balance sheet. Add debt to market cap, then subtract cash.
What to include
Debt: Include short-term and long-term debt. Some analysts add preferred stock and minority interest if significant. Cash: Include cash and cash equivalents. Some exclude restricted cash. Be consistent when comparing companies. Use the most recent balance sheet figures.
Enterprise Value vs Equity Value. Equity Value to Enterprise Value
Enterprise value vs equity value: Equity value (market cap) is the value of shareholders' ownership. Enterprise value is the total value of the business—what an acquirer would pay.
Equity value to enterprise value: You convert equity value to enterprise value by adding debt and subtracting cash. EV = Equity Value (Market Cap) + Debt − Cash. Why? An acquirer pays for the equity but also assumes the debt (add it) and receives the cash (subtract it). Use equity value for P/E and other equity-based metrics. Use EV for EV/EBITDA, EV/revenue, and other capital-structure-neutral multiples.
What Does Enterprise Value Tell You?
What does enterprise value tell you? EV tells you the total cost to acquire the company—the full price for the business including its debt and cash position.
EV is used in valuation multiples because it levels the playing field: two companies with the same earnings but different debt and cash will have different market caps but comparable EVs. EV/EBITDA, EV/revenue, and EV/FCF use EV in the numerator so that comparisons are not distorted by leverage or cash. A company with lots of cash may have a lower EV than market cap; one with lots of debt may have a higher EV.
What Is Good Enterprise Value?
What is good enterprise value? EV by itself is just a dollar amount—there is no absolute "good" or "bad" EV. What matters is EV relative to earnings, revenue, or cash flow.
Use EV in multiples: EV/EBITDA, EV/revenue, EV/FCF. A "good" enterprise value is one that, when combined with strong earnings or cash flow, produces multiples that suggest the stock is fairly valued or undervalued versus peers. Compare EV/EBITDA or EV/revenue to sector averages. See our EV/EBITDA guide for how to interpret these multiples.
EV vs. Market Cap
Market cap is equity value only. EV adjusts for debt and cash. A company with large cash may have EV < market cap. A company with large debt may have EV > market cap. For companies with minimal debt and cash, EV and market cap are similar. Use EV when comparing companies with different balance sheets.
Enterprise Value Example
Company A: Market cap $4B, debt $1.5B, cash $500M → EV = $4B + $1.5B − $500M = $5B. Company B: Market cap $5B, debt $200M, cash $1.2B → EV = $5B + $200M − $1.2B = $4B. Company B has a higher market cap but a lower EV because of its cash. For EV/EBITDA or EV/revenue, Company B may look cheaper if they have similar operating metrics.
Frequently Asked Questions
What is enterprise value?
Enterprise value (EV) is the total value of a company including its equity (market cap) and debt, minus cash. It represents the theoretical takeover price—what an acquirer would pay to own the entire business, including assuming its debt and receiving its cash. EV = Market Cap + Total Debt − Cash.
What is the enterprise value formula?
The enterprise value formula is: EV = Market Cap + Total Debt − Cash (and cash equivalents). Market cap = shares outstanding × stock price. Total debt includes short-term and long-term debt. Cash subtracts because an acquirer would receive it. Some analysts use net debt (total debt − cash) and add it to market cap: EV = Market Cap + Net Debt.
How do you calculate enterprise value?
Get market cap (shares × price). Get total debt and cash from the balance sheet. EV = Market Cap + Total Debt − Cash. Example: Market cap $5B, debt $1B, cash $500M → EV = $5B + $1B − $500M = $5.5B. Use the most recent balance sheet. Include cash equivalents; some definitions include minority interest and preferred stock.
What is enterprise value vs equity value?
Equity value (market cap) is the value of shareholders' ownership. Enterprise value is the total value of the business—equity plus debt minus cash. EV includes debt because an acquirer assumes it; EV subtracts cash because the acquirer receives it. Use equity value for equity-focused metrics (P/E). Use EV for capital-structure-neutral metrics (EV/EBITDA, EV/revenue).
What does enterprise value tell you?
Enterprise value tells you the total cost to acquire the company—what you would pay for equity plus the debt you would assume, minus the cash you would get. EV is used in valuation multiples (EV/EBITDA, EV/revenue) to compare companies with different debt and cash levels. A higher EV relative to peers may mean the company is more highly valued or has more debt.
What is good enterprise value?
There is no absolute "good" enterprise value—it is a dollar amount that depends on company size. What matters is EV relative to earnings, revenue, or cash flow (e.g., EV/EBITDA, EV/revenue). A "good" EV is one that, when used in multiples, suggests the stock is fairly valued or undervalued compared to peers. Compare EV/EBITDA or EV/FCF to sector averages.