Valuation · updated October 21, 2026
What is enterprise value (EV) and how is it calculated
Enterprise value (EV) shows what someone buying the whole company would pay: the shares at market price, plus the debt they take on, minus the cash in the bank. It is more complete than market cap, because it also counts the debt.
Enterprise value (EV) formula
- Market cap
- Share price times the number of shares.
- Financial debt
- Bank loans, bonds and leases.
- Cash
- Money in the bank and short-term deposits; the buyer gets it back.
Worked example
A company is worth $80 billion on the stock market, has $30 billion of debt and $10 billion in cash.
The buyer pays $80 billion to shareholders, takes on $30 billion of debt and finds $10 billion in the bank. The real cost is $100 billion.
Worth knowing
EV is used in ratios like EV/EBITDA and EV/sales, which compare companies with very different debt levels fairly. Two companies with the same market cap can have very different EVs.
When enterprise value (EV) can fool you
Banks and insurers: for them, liabilities (deposits, policies) are the business itself, so EV is not used. Leases and pensions are sometimes hidden debts that the simple calculation misses. Cash trapped in other countries may not really be available.
Related terms
Learn it in the Academy
Questions about enterprise value (EV)
Why is cash subtracted in EV?
Because whoever buys the company also gets the cash in its bank account. In effect, they use it to pay part of the price.
Can EV be lower than market cap?
Yes, when the company has more cash than debt. Then EV is lower than the value of the shares.
These explanations are for information only. They are not a recommendation to buy or sell.
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