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Glossary
Valuation

Enterprise value

EV

What it would really cost to buy the whole company, debt included.

If you buy every share of a company you also inherit its debts, and you get to keep its cash. Enterprise value adjusts for both, which is why it is the number acquirers actually think in.

Two companies can have the same market cap while one is debt-free and the other is drowning. Their enterprise values are wildly different, and so is what you are getting for your money.

The formula
EV = Market cap + Total debt − Cash
Figure

Why the debt is the engine

Debt 70secured on the targetEquity 30+30%Debt 70, unchangedEquity 60, doubled

Put in 30, borrow 70, secure the loan against the company you are buying. A 30% rise in the business doubles your money. The same arithmetic works in reverse, which is why buyouts fail loudly.

Why it matters

It is the honest price of the business, independent of how it happens to be financed.

The mistake everyone makes

Comparing market caps between a debt-free company and a leveraged one, and thinking you have compared prices.

Related terms

EV/EBITDA
Enterprise value against operating earnings. The takeover world's favourite multiple.
Market capitalisation
The total value the market puts on all a company's shares.
Debt to equity
How much of the business is funded by lenders rather than owners.

See Enterprise value on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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