Enterprise Value (EV) Explained: What Investors Actually Pay For a Business
Enterprise value explained: why EV matters, how it differs from market cap, and how investors use EV in valuation multiples like EV/EBITDA.
What is enterprise value?
Enterprise value approximates the value of the entire business (equity + debt − cash). Investors use EV to compare businesses with different leverage fairly.
EV vs market cap
- Market cap = value of equity only
- EV includes debt and cash adjustments
- EV is useful for operating-performance multiples
Use EV in valuation
Learn how investors use EV/EBITDA and peer comparisons.
FAQs
Why subtract cash in enterprise value?▼
Cash reduces the net price an acquirer effectively pays because it can be used to pay down debt or return to shareholders.
Is EV always meaningful?▼
It is most useful for operating businesses. Financials (banks/insurers) are often valued with different metrics.
Related
Intrinsic Investor is for education and research only. Not financial advice.