GLOSSARY // Fundamentals
Enterprise Value (EV)
Enterprise value is the theoretical takeover price of a whole business: market cap plus total debt minus cash and equivalents. A buyer acquiring the company inherits its debt and pockets its cash, so EV captures what the operation actually costs.
EV fixes the blind spot in market cap. Two companies can share a $10B market cap while one holds $4B in net cash and the other carries $4B in net debt — an $8B difference in what you would really pay. Ratios built on EV (EV/EBITDA, EV/sales) make debt-heavy and cash-rich companies comparable in a way price-based ratios cannot.
A quirk worth knowing: a company whose cash exceeds its market cap plus debt shows a negative EV — the market is pricing the operating business below zero. It happens occasionally in beaten-down small caps and is either deep value or a signal the cash is expected to burn away.
A company has a $10B market cap, $3B in total debt, and $1B in cash: EV = 10 + 3 - 1 = $12B. With $1.5B in EBITDA, it trades at EV/EBITDA = 12 / 1.5 = 8x. A debt-free peer with the same market cap and EBITDA trades at 10 / 1.5 = 6.7x — cheaper once the borrowing is counted.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.