TL;DR: Enterprise value, or EV, equals market capitalization plus total debt minus cash. It answers the acquirer's question: what would it cost to buy the entire business, assuming its debts and pocketing its cash. For the illustrative company below, a market cap of $1,000 million plus debt of $300 million minus cash of $150 million gives an enterprise value of $1,150 million. Market cap prices only the shares. EV prices the whole enterprise, which is why valuation ratios built on EV can be compared across companies with very different borrowing.
Key Takeaways
- EV equals market cap plus total debt minus cash and equivalents. Debt raises the true purchase cost, cash lowers it, because a buyer inherits both.
- Two companies with identical market caps can have very different EVs. The one carrying more debt is the more expensive enterprise.
- EV is the numerator in EV to EBITDA and EV to sales, the standard whole company valuation multiples.
- A negative enterprise value is possible when cash exceeds market cap plus debt. It is rare, and it signals deep market pessimism rather than a free company.
- EV ignores some real claims in simplified versions, such as leases, pensions, and minority interests. Check what a data provider includes before comparing figures.
The calculation, worked once
All figures in this section are illustrative, in millions. An illustrative company trades at $40 per share with 25 million shares outstanding. Its market cap is $40 multiplied by 25 million, which equals $1,000 million, the calculation covered in what is market cap. The company also carries total debt of $300 million and holds cash of $150 million. Enterprise value is $1,000 million plus $300 million minus $150 million, which equals $1,150 million.
Read that result as an acquirer. Buying every share costs $1,000 million, but the buyer also takes on $300 million of debt that must be repaid or refinanced, and receives $150 million of cash already in the business that can immediately offset the price. The net cost of owning the whole operation, free and clear, is $1,150 million. That is the question EV answers, and it is a different question from the one the share price answers.
Now vary only the balance sheet. Give the same company debt of $600 million instead of $300 million and its EV becomes $1,000 plus $600 minus $150, which equals $1,450 million. Give it no debt and cash of $400 million and its EV becomes $1,000 plus $0 minus $400, which equals $600 million. Three companies, one identical market cap of $1,000 million, and enterprise values of $1,450 million, $1,150 million, and $600 million. Any valuation comparison that used market cap alone would call them equals. They are not.
How EV is used: the whole company multiples
Because EV values the whole enterprise, it pairs with whole enterprise earnings measures. The most common is EV to EBITDA, using the measure explained in what is EBITDA. If the illustrative company above, at its original EV of $1,150 million, generates EBITDA of $230 million, its EV to EBITDA is $1,150 million divided by $230 million, which equals 5.0. The pairing is deliberate: EV includes debt, and EBITDA is earnings before interest on that debt, so numerator and denominator describe the same whole business. The P/E ratio makes the opposite pairing, equity price against equity earnings after interest, covered through earnings per share explained and what is the P/E ratio.
EV to sales applies the same logic where earnings are negative or distorted: EV divided by revenue compares whole company prices for businesses that cannot yet be compared on profit. Both multiples inherit EV's strength and its weakness. They compare capital structures fairly, and they are only as clean as the debt and cash figures inside the EV, which change every quarter and differ in definition between data providers.
One boundary matters for FullPort readers screening stocks: EV is an acquisition concept applied to portfolio investing as a comparison tool. A minority shareholder cannot force the cash out or retire the debt, so EV describes the company's total valuation, not the value realisable from any single holding. Used as a comparison yardstick across similar companies, that is fine. Used as a claim about what a share must be worth, it overreaches, in the same way the Graham number overreaches when a screening ceiling is read as a valuation.
Sources and method
- Target keyword: "what is enterprise value" from .saeo/keywords.yaml (queue entry added 2026-10-28). No search volume or difficulty figure is claimed; both are recorded as unknown in the queue entry.
- All company figures are labelled illustrative examples. Arithmetic verified for this draft on 2026-10-28: 40 multiplied by 25 equals 1,000; 1,000 plus 300 minus 150 equals 1,150; 1,000 plus 600 minus 150 equals 1,450; 1,000 plus 0 minus 400 equals 600; 1,150 divided by 230 equals 5.0.
- Internal links checked against existing drafts in this folder on 2026-10-28: what-is-market-cap, what-is-ebitda (drafted in this same run), earnings-per-share-explained, what-is-pe-ratio, what-is-the-graham-number.
