What this calculator does
Enterprise value is what it would cost to buy a company outright. Buying the shares is only part of it: the debt comes too, and the cash on the balance sheet effectively comes back to the buyer, so it is subtracted.
That is why two companies with identical market capitalisations can be valued very differently. A debt-free business sitting on $400,000 of cash has an enterprise value below its market cap, while one carrying $2.5 million of debt has an enterprise value 1.42 times its market cap.
The formula
Add market capitalisation, total debt, minority interest and preferred equity, then subtract cash and equivalents. Net debt is simply total debt less cash.
| Term | Meaning |
|---|---|
| Enterprise value | The theoretical cost of acquiring the whole business, debt included. |
| Net debt | Total debt less cash. Negative net debt means more cash than borrowing. |
| Minority interest | The portion of a consolidated subsidiary the parent does not own, which an acquirer would still need to deal with. |
The inputs explained
| Field | What to enter |
|---|---|
| Market capitalisation ($) | Market capitalisation, meaning share price times shares outstanding. |
| Total debt ($) | Total interest-bearing debt, short and long term. |
| Minority interest ($) | Minority interest, if the accounts consolidate a partly owned subsidiary. Often zero. |
| Preferred equity ($) | Preferred equity, which ranks ahead of ordinary shares. Often zero. |
| Cash & equivalents ($) | Cash and equivalents, which reduce the effective purchase cost. |
When to use it
Comparing companies with different debt loads
Enterprise value puts businesses on a common footing in a way market cap alone cannot.
Calculating a valuation multiple
EV to EBITDA is the standard multiple precisely because both sides ignore capital structure.
Assessing an acquisition price
The headline share price understates the cost when the target carries significant debt.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does debt change the enterprise value?
The same equity value with three levels of debt.
| Total debt | Enterprise value | Net debt |
|---|---|---|
| $0.0m | $4,600,000.00 | −$400,000.00 |
| $1.2m | $5,800,000.00 | $800,000.00 |
| $2.5m | $7,100,000.00 | $2,100,000.00 |
Questions
Why subtract cash?
Because an acquirer effectively gets that cash back on completion and can use it to repay part of the purchase price. The real cost of the acquisition is reduced by whatever cash sits on the balance sheet.
Can enterprise value be negative?
Yes, though rarely. A company holding more cash than its market capitalisation and debt combined has a negative enterprise value, which usually means the market expects it to burn that cash.
Why do analysts prefer EV multiples to P/E?
Because P/E is distorted by capital structure. Two identical businesses with different debt levels will have different P/E ratios, while their EV to EBITDA multiples remain comparable.
Should market or book value of debt be used?
Market value, in principle. In practice book value is usually close enough unless the debt trades well away from par, which happens when a company is in distress.
For the earnings figure EV is usually compared against, see the EBITDA calculator. For price-based ratios instead, see the valuation multiples calculator.