Enterprise Value (EV) Explained

Enterprise value estimates the total value of a business by combining market capitalization with net debt and other claims.

Enterprise value formula

Enterprise Value = Market capitalization + Total debt + Preferred equity + Minority interest − Cash and cash equivalents

Why EV matters

EV is often more useful than market capitalization because it considers capital structure. Two companies may have similar market caps but very different debt and cash balances.

Common EV multiples

• EV/EBITDA
• EV/Revenue
• EV/EBIT
• EV/Free Cash Flow