Enterprise Value Definition
Enterprise Value (EV) is the total theoretical acquisition cost of a business:
EV = Market Cap + Total Debt - Cash
Unlike market cap, EV accounts for a company's capital structure — debt obligations a buyer inherits and cash a buyer receives.
EV vs Market Cap
| Market Cap | Enterprise Value | |
|---|---|---|
| What it represents | Equity value only | Total acquisition cost |
| Includes debt | No | Yes |
| Includes cash | No | Subtracts it |
| Use case | Stock price comparison | M&A, DCF valuation |
Components of Enterprise Value
- Market Cap: Current share price × shares outstanding
- Total Debt: All interest-bearing liabilities (short + long-term)
- Cash: Cash and cash equivalents are subtracted (buyer receives this)
- Minority Interest (advanced): Included if subsidiaries are partially owned
- Preferred Stock (advanced): Added like debt
Why EV Matters
When comparing two companies with different capital structures, EV gives a cleaner comparison. A heavily-leveraged company with the same market cap as a debt-free peer is actually much more expensive to acquire.
Calculate enterprise value with the Enterprise Value Calculator.