Enterprise Value

intermediate

7 min read

Updated 2026-07-13

Reviewed by SST Editorial

Enterprise Value (EV) is a comprehensive valuation metric that represents the theoretical takeover cost of a business. It is calculated by adding the company's Market Capitalization, preferred stock, and total debt, and then subtracting its cash and cash equivalents.

Key Takeaways

01.Calculated as Market Cap + Debt - Cash.
02.Accounts for debt that an acquirer must assume, and cash they would receive.
03.Provides a truer picture of acquisition cost than Market Capitalization alone.
04.Used as the denominator in institutional multiples like EV/EBITDA and EV/Sales.

Why it matters

EV is critical for comparing companies with different capital structures. A highly leveraged company might look cheap based on Market Cap, but its massive debt will show its true expensive nature under Enterprise Value.

Common Mistakes

Using Market Cap instead of EV for debt-heavy firms

Comparing valuations of capital-intensive firms (like utilities) using P/E or P/S can be highly misleading because it ignores massive balance sheet debt. Use EV-based multiples instead.

Command Palette

Key Takeaways

Why it matters

Common Mistakes

Using Market Cap instead of EV for debt-heavy firms

Further Reading