Glossary · Valuation · Beginner-friendly
Enterprise value
In plain English
Enterprise value is a fuller price tag for the whole company: equity value plus net debt. It helps compare firms that borrow differently.
Everyday analogy: Buying a house: you care about the sticker price and the mortgage still attached.
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Why it matters
EV makes leverage visible. Two identical market caps can hide very different firm-level risk.
A bit more detail (optional)
Why not just market cap
Buying the equity of a debt-heavy company is different from buying a debt-light peer. EV folds in net debt so takeovers and comps are apples-to-apples.
Common multiples
EV/EBITDA and EV/sales are popular screens. They still need sector context, growth, and margin quality.
Simple examples
Same equity, different firm
Two firms have identical market caps. One has large net cash; the other has heavy debt. EV says the second is a bigger (riskier) economic claim.
Debt changes the deal
Same equity value; Company A has net cash, Company B has heavy debt. EV says B is the larger economic claim - and usually the riskier one.
Easy mistakes to avoid
- Equating market cap with takeover value
- Forgetting net cash that lowers EV
- Comparing EV multiples across wildly different capital intensities
Remember: Market cap prices the equity; EV prices the whole firm.