Valuation
Enterprise value is the total value of a business, including its debt, minus its cash. It shows what it costs to buy the whole operation.
Enterprise value, or EV, measures the full worth of the business, not only the owner's share. It adds debt to the value of the equity and subtracts cash.
For example, a company has equity worth $22 million, $6 million in debt and $3 million in cash. Its enterprise value is $25 million: $22 million plus $6 million, minus $3 million.
EV matters because buyers set price on it. An EBITDA multiple applies to earnings and gives an EV. After that, debt is paid off and cash is counted, and what is left goes to the owners. This final amount is the equity value.
So a headline price and the check you receive can differ. Always ask a buyer to show how it moves from enterprise value to your net proceeds, including debt, fees and working capital. Read more in how private equity values a business.
Related terms
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