Enterprise value

Buying a company's shares does not free you from its debts. Enterprise value is the price of the entire business: what you pay the shareholders, plus the borrowings you inherit, less the cash you find in the till.

That makes it the right numerator when comparing companies financed differently. Two businesses with identical operations and identical market capitalisations are not equally priced if one carries $5bn of debt.

Market capitalisation of $3,000m, total debt of $600m, cash of $200m.

1. 13,000 + 600 = 3,600.
2. 23,600 - 200 = 3,400.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Pair it with a pre-interest profit measure such as EBITDA or operating income. Pairing it with net income double-counts the financing.
• Enterprise value below market capitalisation means the company holds net cash, which is common in software and rare elsewhere.
• It is the figure an acquirer would actually reason about, which is why it appears in takeover coverage rather than share price.

• It ignores minority interests and preferred stock unless they are added explicitly, which matters at holding companies.
• Market capitalisation moves every day, so enterprise value is only as current as the price behind it.
• Off-balance-sheet obligations are excluded.

Used as the numerator of EV/EBITDA in the Valuation category of the scorecard. It is not shown as a standalone figure.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.