Enterprise value (EV)
Enterprise value (EV) is what it would cost to buy a company outright: its market capitalisation plus the debt taken on, minus the cash it already holds. Unlike market cap, EV does not depend on how the company is financed, which makes it possible to compare two firms in the same sector even if one carries heavy debt and the other none.
How it is calculated
EV = market capitalisation + total financial debt − cash and equivalents. A company trading at €10,000M, with €3,000M of debt and €1,000M of cash, has an EV of €12,000M. The logic is the buyer's: if you take the whole company you pay €10,000M to the shareholders, you inherit €3,000M of debt, and you find €1,000M in the bank that you can use to pay it down. That is why cash is subtracted. Minority interests and preferred shares are added too. This is the figure that gets compared with EBITDA or with free cash flow, not market cap, because those two are generated by the business BEFORE anything is split between shareholders and creditors.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
It is not what the company is worth on the market: that is market capitalisation. And it is not a real purchase price, because an actual deal closes at a premium to the market. Watch one case that catches people out: a company with more cash than debt has an EV LOWER than its market cap, and if the cash pile is large the EV can approach zero without that meaning the company is being given away.
Formula
EV = capitalización + deuda − caja See also
See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.