Enterprise Value (EV) is a measure of a company’s total value, including its market capitalization, debt, and cash, representing the actual cost to acquire the business.
Enterprise Value (EV) is a key valuation metric used in corporate finance and stock analysis. It provides a more comprehensive view of a company’s value than market capitalization alone because it considers both debt and cash positions.
The formula is:
EV = Market Capitalization + Total Debt − Cash & Cash Equivalents
EV is widely used in valuation ratios like EV/EBITDA, which helps investors compare companies regardless of their capital structure.
A company with high debt will have a higher EV, while a company with large cash reserves may have a lower EV. This makes EV useful for mergers, acquisitions, and investment decisions.
"<p> If a company has: </p> <ul> <li>Market Cap = ₹100 crore</li> <li>Debt = ₹40 crore</li> <li>Cash = ₹10 crore</li> </ul> <p> Then EV = ₹100 + ₹40 − ₹10 = ₹130 crore </p>"