Enterprise Value

Enterprise value is market capitalisation plus total debt minus cash and equivalents. It represents what an acquirer would actually need to pay to take over the whole business — not just the equity, but also the debt they'd assume, net of any cash sitting on the balance sheet.

• —Market cap alone ignores capital structure — two companies with identical market caps can have very different total takeover costs depending on debt and cash.
• —It's the numerator behind EV/EBITDA and EV/Sales, the valuation multiples used most often in M&A and private-equity analysis.
• —A company with a lot of net cash can have an enterprise value well below its market cap — sometimes a sign the market is overlooking balance-sheet strength.