Enterprise Value (EV)

Enterprise value (EV) is the theoretical price to buy a company in its entirety. It starts from market capitalization, adds total debt (and minority interest and preferred stock), then subtracts cash and equivalents — because an acquirer effectively gets the target's cash to offset the purchase.

EV exists to fix what market cap misses: debt. Two companies with identical market caps can have wildly different real costs if one is debt-free and the other is leveraged. By folding in net debt, EV is capital-structure-neutral, which makes it the honest basis for comparing businesses that finance themselves differently.

EV is the numerator in the multiples professionals trust most — EV/EBITDA and EV/Sales — precisely because they compare on an apples-to-apples, pre-financing basis, unlike P/E which is distorted by leverage and tax structure. A company with more cash than debt can even have an EV below its market cap.