What Is Enterprise Value?

Enterprise value, or EV, is the price of an entire business rather than of its shares alone. It is calculated as market capitalization plus debt minus cash. It answers the question of what someone would have to pay to buy the whole company along with its obligations: they buy the shares, take on the debt, and also keep the cash sitting in the bank.

How it's calculated#

Enterprise value = Market capitalization + Interest-bearing debt - Cash and liquid securities

Say two companies are each worth $10 billion on the stock market. The first has $3 billion of loans and $1 billion of cash, so its enterprise value is $12 billion. The second has no debt and holds $2 billion of cash, so its enterprise value is $8 billion. At the same market cap, a buyer pays half as much again for the first business as for the second, because along with the shares it takes on $2 billion of net debt rather than $2 billion of net cash.

A fuller version of the formula also adds noncontrolling interests in subsidiaries and preferred stock, since both are claims on the business that common shareholders do not hold. For most companies these items are small, but in groups with large partly owned subsidiaries they can move the result by several percent.

A real example#

Apple's annual report for fiscal 2025 states that the market value of shares held by non-affiliates was $3,253.43 billion on March 28, 2025. Strictly, that is not market capitalization: it leaves out shares held by directors, officers and other affiliates, so it slightly understates it. Insiders own a fraction of a percent of Apple, so here the two sit very close, and the example uses it because it is a market value the company itself put in a filing.

The quarterly report dated March 29, 2025 shows $98.19 billion of debt, made up of term debt and commercial paper, and $132.92 billion of cash and marketable securities, current and non-current. Enterprise value therefore comes to about $3,218.7 billion, $34.7 billion less than the value of the shares. Even after years of buybacks partly funded with debt, Apple still held more cash than debt, and a buyer of the whole business would have paid slightly less for it than for the shares alone.

Why enterprise value matters#

Enterprise value is the base for multiples that do not depend on capital structure. The most common is EV/EBITDA: enterprise value divided by EBITDA. Unlike the P/E ratio, it compares the price of the whole business with the profit available to everyone who finances it, shareholders and lenders alike. That makes it suitable for comparing a debt-free company with a heavily indebted one, where the P/E ratio would mislead.

It is most useful when a company is changing its leverage. If a company borrows to buy back shares, its market cap falls but its enterprise value barely moves, because the business is the same. The P/E ratio shifts in that situation; EV/EBITDA does not.

What to watch for#

Market cap changes every trading day, while debt and cash are known only as of the balance-sheet date. Enterprise value built from today's price and debt from three months ago mixes two dates, which matters for companies whose leverage changed sharply during the quarter.

The second trap is the definition of debt. Leases, pension obligations and provisions may or may not be included, so two sources can print different enterprise values for the same company. When comparing multiples, stick to one definition.

Related terms#

Market capitalization is the starting point for enterprise value. EBITDA is its most common denominator. How to read multiples against a company's own history is covered in valuation multiples.