Series 79: Enterprise Value And Enterprise Value Multiples

Enterprise Value and Enterprise Value Multiples

Enterprise value and its multiples are among the most important and widely used measures of a company’s absolute and relative value. Enterprise value (EV) is often referred to as the “takeover value” of a company. Enterprise value is a more comprehensive representation of value than pure market cap, because EV includes a company’s cash and debt in addition to equity value. Since an acquirer of a company buys that company’s cash and debt, EV is a more realistic measure of market value.

Enterprise value is a relatively straightforward number to calculate. In its simplest form, the equation is:

enterprise value = market value of common shares + net debt

To review, market value is the same as the equity value the current market price of the stock—not the book value—multiplied by the fully diluted number of shares. Net debt equals total interest-bearing debt on the balance sheet minus cash and cash equivalents.

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