Enterprise Value (EV) represents the total value of a business, including equity and debt, minus cash. It reflects what a buyer would pay to acquire the entire company, assuming they take on its debt and keep its cash. EV is a more comprehensive measure than market capitalization because it accounts for the company’s capital structure.
Formula:
EV = Market Value of Equity + Total Debt − Cash & Cash Equivalents
Why It Matters:
EV is critical in mergers, acquisitions, and valuation analysis because it shows the true cost of buying a business. It’s often used in valuation multiples like EV/EBITDA to compare companies regardless of their financing choices
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