Enterprise value formula
Enterprise value is the value of a company's operations to all its investors, shareholders and lenders together. It is equity value plus debt, preferred stock and noncontrolling interest, minus cash.
- Enterprise value
EV = equity value + debt + preferred stock + noncontrolling interest − cash
Add every claim on the business, then take off the cash a buyer would get with it.
- Equity value
Equity value = share price × diluted shares
Use diluted shares, so options and convertibles are counted.
- Enterprise value multiple
EV ÷ EBITDA
Enterprise value pairs with measures before interest, like revenue, EBITDA and EBIT. Equity value pairs with net income and EPS.
Inputs
Worked example
- Equity value$25 × 40.0m diluted shares
- $1,000.0m
- Plus debt
- $200.0m
- Less cash
- ($300.0m)
- Enterprise value1,000.0 + 200.0 − 300.0
- $900.0m
- What it tells you
- Net cash200.0 − 300.0
- $100.0m
- Enterprise value to EBITDA900.0 ÷ 100.0
- 9.0x
How to calculate enterprise value
Four steps, from the share price to the total.
1. Start with equity value
Share price times diluted shares. For a private company, use the price a buyer would pay for the shares.
2. Add the debt
Lenders have a claim on the business too. A buyer takes on the debt, so it is part of the price.
3. Add preferred stock and noncontrolling interest
Preferred holders are paid before common shareholders. Noncontrolling interest is added because the company reports all of the EBITDA of subsidiaries it only partly owns.
4. Subtract the cash
Cash is not part of operations, and a buyer could use it to pay down the debt. It comes off the price.
Explain enterprise value out loud
Knowing the formula is half of it. Interviewers ask why cash comes off and whether the number can go negative. Practice the answer with an AI interviewer.
Questions people ask
Why do you subtract cash to get enterprise value?
Because cash comes with the company. A buyer pays for the equity and takes on the debt, but gets the cash back, so the net cost of the operations is lower.
Can enterprise value be negative?
Yes, when cash is more than equity value plus debt. With equity value of $150m, debt of $50m and cash of $300m, enterprise value is minus $100m. It usually means the market expects the cash to go on losses.
What is the difference between enterprise value and equity value?
Equity value belongs to shareholders. Enterprise value belongs to shareholders and lenders together. To go from equity value to enterprise value, add debt and subtract cash.
Which multiples use enterprise value?
Multiples built on measures before interest, such as EV to revenue, EV to EBITDA and EV to EBIT. Price to earnings uses equity value, because earnings come after interest.