Enterprise Value

Enterprise value is the total takeover price: market cap plus debt minus cash.

Common confusion

A company with lots of cash is cheaper than its market cap suggests; debt adds cost.

Why it matters

It is what a buyer actually pays, making it the true firm value.

A real-world scenario

A mining company has a $1 billion market cap, $400 million of debt, and $250 million of cash. Its EV is $1.15 billion. A rival with the same market cap but no debt and $500 million of cash has an EV of only $500 million — the second is genuinely the cheaper business for a buyer. An investor comparing the two by market cap alone would miss that one is carrying a debt anchor while the other is a cash box. EV is the number that separates the true price from the sticker price.

Worked example

How investors use it

Use EV when valuing whole companies or comparing across capital structures. For stock-only decisions, market cap is fine; when debt levels differ, EV tells the truer story.

Key takeaway

Enterprise value is the true takeover price — market cap plus debt minus cash — and it reveals the balance sheet that market cap hides. A company with heavy debt is far more expensive than its stock price suggests; one sitting on cash is cheaper. Use EV when valuing whole businesses or comparing across capital structures, and remember the gap between EV and market cap is the debt and cash you inherit. The stock price is the ticket; EV is the full bill.

Definitions reviewed by the Investing Glossary editorial team.