What Is Enterprise Value?
Enterprise value, or EV, is what it would really cost to buy a whole company. It starts with the market cap, adds the company's debt, and subtracts its cash.
Enterprise value in simple words
Imagine buying a house for $300,000 that still has a $100,000 mortgage you must take over. The real cost is $400,000. If the seller leaves $20,000 cash in a drawer, your true cost drops to $380,000. EV works the same way for companies.
How EV is calculated
A company has a market cap of $100 billion, $30 billion of debt and $10 billion of cash. Its EV is $120 billion.
Why EV beats market cap for comparisons
Two companies can have the same market cap, but one may carry a mountain of debt. EV shows that difference. That makes it fairer when comparing companies with very different finances.
What is a good EV ratio?
The most common one is EV divided by EBITDA. Many mature businesses trade somewhere around 8 to 15 times, but it varies by industry. As always, compare similar companies.
See it in real companies
Open a company to see what it sells and how it makes money.