Enterprise Value
The total value of a business including both equity and debt, representing the price to acquire the entire entity.
Full Definition
Enterprise Value (EV) represents the total value of a business, including both equity value and net debt. It reflects what an acquirer would need to pay to take over the entire company.
Calculation: Enterprise Value = Equity Value + Debt - Cash Or more precisely: EV = Market Cap + Total Debt + Minority Interest + Preferred Equity - Cash and Cash Equivalents
Components explained:
- Equity Value: What shareholders would receive
- Debt: All interest-bearing debt (bank loans, bonds, leases)
- Cash: Available cash (reduces acquisition cost)
- Debt-like items: Pension deficits, provisions, deferred consideration
Why EV matters:
- Capital structure neutral comparison
- Basis for EV/EBITDA multiples
- Starting point for price negotiations
- Framework for understanding offer values
EV to Equity Value bridge: Enterprise Value
- Less: Net Debt
- Less: Debt-like items
- Plus: Cash-like items = Equity Value (what seller receives)
In UK M&A, purchase prices are often quoted on a "cash-free, debt-free" basis, meaning Enterprise Value with a normalised level of working capital.
Related Terms
Equity Value
The value attributable to shareholders, calculated as Enterprise Value minus net debt and debt-like items.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortisation – a key profitability metric used in valuations.
Net Debt
Total debt minus cash, representing the net financial obligations that reduce a company's equity value.
Multiple
A valuation ratio comparing price to a financial metric, such as revenue or EBITDA, used to value businesses.