Enterprise value
Also called: EV of a company
Market capitalisation plus debt minus cash, an estimate of the value of the whole operating business owed to lenders and shareholders.
A buyer of every share also takes on the company's debt and gets its cash, so market capitalisation alone understates the cost of the business. A complete EV also adds minority interests, preference capital and debt-like items such as leases, and subtracts non-core investments. Pair it with profit before interest, such as EBITDA or EBIT.
Example
A market cap of ₹10,000 crore plus ₹4,000 crore of debt and leases minus ₹1,000 crore of cash is an EV of ₹13,000 crore.
Learn more in these lessons
- Enterprise valueWhat is enterprise value, and why is it different from market capitalisation?
- EV/EBITDAWhat does EV/EBITDA tell you, and when does it work best?
- Discounted cash flow valuationHow do you build a discounted cash flow valuation?
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