Enterprise Value Calculator
Calculate a company's total enterprise value for investment analysis
How to Use
- Enter the company's market capitalization
- Add total debt (bonds, loans, and other borrowings)
- Enter cash and cash equivalents
- Add preferred stock value if applicable
- Enter minority interest if applicable
- View the calculated enterprise value
What is Enterprise Value?
Enterprise Value (EV) is a comprehensive measure of a company's total value, representing the theoretical price an acquirer would pay to buy the entire business. Unlike market capitalization, which only considers equity value, EV accounts for debt, cash, and other claims on the business.
EV is particularly useful for comparing companies with different capital structures, as it provides a more complete picture of a company's true cost to acquire.
Enterprise Value Formula
The basic enterprise value formula is:
EV = Market Capitalization + Total Debt - Cash and Cash Equivalents + Preferred Stock + Minority Interest
Components Explained
- Market Capitalization: The total value of all outstanding shares (share price × number of shares)
- Total Debt: All interest-bearing liabilities including bonds, loans, and credit facilities
- Cash and Cash Equivalents: Subtracted because an acquirer would receive this cash (reduces the net cost)
- Preferred Stock: Added as it represents a claim on assets senior to common equity
- Minority Interest: Added to account for the value of subsidiaries not wholly owned
Why Use Enterprise Value?
Enterprise value is preferred over market capitalization in several scenarios:
- Comparing companies with different capital structures
- Evaluating acquisition targets (shows the true cost to acquire)
- Calculating valuation multiples like EV/EBITDA or EV/Sales
- Analyzing highly leveraged or cash-rich companies
- Making apples-to-apples comparisons across industries
Common EV Multiples
Enterprise value is often used in valuation ratios:
EV/EBITDA
The most popular EV multiple, comparing enterprise value to earnings before interest, taxes, depreciation, and amortization. Lower ratios may indicate undervaluation.
EV/Revenue
Useful for comparing companies with different profit margins or for early-stage companies. Shows how much investors are paying per dollar of revenue.
EV/FCF
Compares enterprise value to free cash flow, indicating how many years of cash flow are needed to justify the valuation.
When to Use Enterprise Value
Enterprise value is particularly important in these situations:
- M&A Analysis: Determining the true acquisition cost
- Leveraged Buyouts: Understanding total capital required
- Industry Comparisons: Comparing companies with varying debt levels
- Financial Analysis: Calculating capital-structure-neutral metrics
- Investment Screening: Identifying potentially undervalued companies
Limitations of Enterprise Value
While enterprise value is a powerful metric, it has limitations:
- Does not account for off-balance-sheet liabilities
- May not capture the value of unfunded pension obligations
- Operating lease adjustments can be complex
- Does not reflect future growth prospects or competitive advantages
- Can be skewed by non-operating assets or liabilities
- Market cap component is subject to market volatility
Where to Find the Data
- Market Capitalization: Financial websites (Yahoo Finance, Bloomberg, etc.) or multiply current share price by shares outstanding
- Total Debt: Company's balance sheet under liabilities (short-term + long-term debt)
- Cash and Equivalents: Balance sheet under current assets
- Preferred Stock: Balance sheet under shareholders' equity
- Minority Interest: Balance sheet under shareholders' equity (non-controlling interests)
- All data should be from the same reporting period for accuracy
Frequently Asked Questions
- What's the difference between market cap and enterprise value?
- Market capitalization only represents the value of a company's equity (shares), while enterprise value includes the total value to acquire the business, accounting for debt, cash, and other claims. EV gives a more complete picture of a company's true cost.
- Why is cash subtracted from enterprise value?
- Cash is subtracted because when acquiring a company, you receive its cash holdings, which effectively reduces the net purchase price. If you pay $100M for a company with $20M in cash, your net outlay is only $80M.
- Can enterprise value be negative?
- Yes, though rare. A negative EV occurs when a company's cash and equivalents exceed the sum of its market cap, debt, and other obligations. This can signal financial distress or that the market severely undervalues the company.
- What's a good EV/EBITDA ratio?
- There's no universal 'good' ratio as it varies by industry. Mature industries typically have lower multiples (8-12x), while high-growth sectors may have higher multiples (15-25x+). Always compare within the same industry.
- Should I use book value or market value for debt?
- Generally, book value of debt from the balance sheet is acceptable for most analyses. Market value is more accurate but harder to obtain for private debt. The difference is usually small unless interest rates have changed dramatically.