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Enterprise Value
Definition
The total value of a firm's operating assets, calculated as market cap plus net debt.
How It Works
EV = Market Cap + Total Debt - Cash. It represents what a buyer would pay to acquire the entire business.
Formula
EV = Equity Value + Debt - Cash
Example
A firm with $500M market cap, $200M debt, and $50M cash has EV = $650M.
Common Misconceptions
- ✗EV equals market cap
- ✗Cash increases enterprise value (it decreases it)
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Common questions about Enterprise Value
The acquirer effectively gets the cash, offsetting part of the purchase price.
Use EV when comparing companies with different debt levels (EV/EBITDA, EV/Revenue). Use market cap for equity-specific metrics like P/E ratio. EV is capital-structure neutral, making it better for comparing operating businesses.
More Glossary Terms
📉 Discount Rate🧮 Net Present Value (NPV)🎯 Internal Rate of Return (IRR)⚖️ Weighted Average Cost of Capital (WACC)📈 Beta (β)📊 Capital Asset Pricing Model (CAPM)🛡️ Risk-Free Rate💹 Market Risk Premium💲 Cost of Equity🏦 Cost of Debt♾️ Terminal Value💸 Free Cash Flow🏢 Enterprise Value🚧 Hurdle Rate🔁 Annuity♾️ Perpetuity💵 Yield to Maturity (YTM)✂️ Coupon Rate📅 Amortization🔍 Sensitivity Analysis