What Does Enterprise Value (EV) Mean?
Enterprise value (EV) is a financial metric representing the entire value of a company after taking into account both holders of debt and of equity. EV is calculated as the company's market capitalization plus debt, minus cash.
Enterprise value is a useful metric for strategic and financial buyers because it provides a business valuation metric for companies of all different sizes and industries, which can then be compared and benchmarked. The most common way to calculate enterprise value is to apply a multiple to EBITDA.
Divestopedia Explains Enterprise Value (EV)
Enterprise value is the most commonly used metric in business valuation. The other commonly used metric is market capitalization (market cap). To distinguish the difference between market cap and enterprise value, think of the simple example of the value of a house that carries a mortgage. The value of the house would equate to the enterprise value of a business. The value of the house less the outstanding mortgage would equate to the market cap or equity value of a business.
For most private business owners, although it is important to know the enterprise value, it is even more important to know the equity value of the company. The equity value will actually tell you how much you are likely to walk away with after you sell your company and pay off all the debt.