What Is Enterprise Value (EV)?
Enterprise value is the true cost to buy a whole business — not just its market cap. Here’s why it matters.
On this page
Enterprise value (EV) represents the total value of a business — effectively what it would cost to buy the whole company, including its debt. It’s a more complete measure than market capitalisation alone.
The formula
EV = market cap + total debt − cash
The logic: if you bought the entire company, you’d take on its debt (adding to your cost) but also get its cash (reducing it). So EV reflects the real economic price, not just the equity value.
Why EV beats market cap for comparisons
Two companies can have the same market cap but very different debt. EV levels the field by accounting for the balance sheet. That’s why valuation multiples using EV are popular:
- EV/EBITDA — the most common; compares total business value to operating earnings, useful across companies with different debt and tax profiles.
- EV/Sales — handy for companies not yet profitable.
A quick example
A company with a ₹1,000 cr market cap but ₹500 cr of net debt has an EV of ₹1,500 cr — you’re really paying 50% more than the market cap suggests to own the whole thing.
Use it alongside equity multiples
EV multiples complement P/E and P/B, especially for debt-heavy or capital-intensive businesses. No single multiple is enough on its own. Education only, not a recommendation.
