New to this? Read the plain English guide first.
Add debt, subtract cash, and see what a whole business is really priced at.
Enterprise value, or EV, estimates the cost of buying an entire business. It starts with market cap, adds the debt a buyer would take on and subtracts the cash that comes with it. Two companies with the same market cap can have very different EVs if one carries heavy debt.
Enterprise value equals market cap plus total debt minus cash and cash equivalents. Net debt equals debt minus cash.
A company has a market cap of $1 billion, $250 million of debt and $100 million of cash. Enterprise value is 1,000 plus 250 minus 100, or $1.15 billion. Net debt is $150 million. A buyer paying market price would effectively be paying $1.15 billion for the operating business.
Use EV when comparing valuations across companies with different debt levels, often as EV divided by sales or by operating profit. It gives a fairer picture than P/E for companies that borrow heavily.
Forgetting lease obligations or preferred shares in some industries, using stale debt figures and treating all cash as freely available when some is trapped overseas or needed to run the business.
Learn the basics in how to read a balance sheet and try the market cap calculator. See every term in the investing glossary, try more tools in investor tools, or test yourself in Stock Jeopardy.
For education only, not investment advice. Results are estimates based on the numbers you enter.