Enterprise Value (EV)
The total value of a business to all capital providers: equity value plus net debt (and other claims like preferred and minority interest). EV is capital-structure neutral, which is why it pairs with metrics like EBITDA.
Why Enterprise Value (EV) matters in interviews
Enterprise value versus equity value is the single most common opening technical in banking and private equity interviews, because it tests whether you understand who owns a business rather than whether you can recite a formula. Almost every valuation multiple, every LBO entry price and every comps table depends on getting the bridge right, so interviewers use it as a cheap filter before spending time on harder questions.
How it works in practice
Enterprise value is the value of the operating business itself, before deciding which capital providers own it. Equity value is what is left for shareholders. The bridge runs: enterprise value = equity value + total debt + preferred stock + minority interest − cash and cash equivalents.
A worked case: a company has 100m shares trading at $20, so equity value is $2.0bn. It carries $600m of debt and $150m of cash. Enterprise value is $2.0bn + $600m − $150m = $2.45bn. If the business generates $350m of EBITDA, it trades at 7.0x EV/EBITDA. Note that you divide by EBITDA — a pre-interest, pre-tax figure available to all capital providers — which is why the numerator must be enterprise value and not equity value.
The intuition for subtracting cash: if you buy the whole company for $2.0bn of equity and assume its $600m of debt, you immediately get the $150m sitting in its bank account back, so the true cost of acquiring the operating business is $2.45bn.
What candidates get wrong
- Pairing an equity-value numerator with an enterprise-value denominator. P/E uses equity value; EV/EBITDA, EV/EBIT and EV/Revenue use enterprise value.
- Forgetting minority interest. If the company consolidates 100% of a subsidiary it only owns 80% of, EBITDA includes all of it, so enterprise value must add back the 20% it does not own.
- Subtracting all cash reflexively. Operating cash a business genuinely needs to run is not excess cash, and buyers on the sell side will argue about exactly this line.
- Using book value of equity instead of market capitalisation. Enterprise value is a market concept.
Enterprise Value (EV): frequently asked questions
Why do you subtract cash from equity value to get enterprise value?
Because an acquirer effectively receives the cash back on day one. If you pay $2.0bn for the equity of a company holding $150m of cash, your net cost of owning the operating business is $1.85bn plus whatever debt you assume. Cash is not part of the operating business being valued.
Does enterprise value change if a company issues equity to repay debt?
In theory no. Issuing $200m of stock to repay $200m of debt raises equity value by $200m and lowers debt by $200m, leaving enterprise value unchanged. That is the point of the concept: enterprise value is capital-structure neutral, which is why it is used for comparing companies financed differently.
Is enterprise value ever negative?
Yes, when a company holds more cash than its market capitalisation plus debt — occasionally seen in deeply distressed or cash-rich shell situations. It usually signals the market expects the cash to be burned rather than returned.
Go deeper
This term comes up constantly in valuation interviews and on the desk.
DCF interview questions guideRelated Valuation terms
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