Enterprise Value
Private Equity glossary · Paper LBOs & Returns Math
Definition
Total value of a company's core operating business, capturing claims of all capital providers net of non-operating cash: EV = Equity Value + Total Debt + Preferred Stock + NCI - Cash & Equivalents. EV is the correct numerator for unlevered multiples (EV/EBITDA, EV/EBIT, EV/Revenue) because it pairs with metrics available to all capital providers. In a PE transaction, the cash-free/debt-free purchase-price formula bridges EV to equity purchase price by subtracting net debt, debt-like items (unfunded pension, environmental reserves), and the working-capital deviation from target.
Enterprise Value in plain English
Enterprise Value answers the question, 'What's the whole underlying business really worth — the entire pizza, no matter who ends up with which slice?' The stock price only shows the owners' slice; but a company also owes money to lenders, so EV adds the debt on top of the equity value and subtracts any spare cash (since cash could be used to pay down that debt). Here's the everyday version: if a house is listed at $300,000 but comes with a $200,000 mortgage the buyer must take over, the true cost of controlling that house is really the $500,000 combined. That's why EV, not just the stock value, is the number you compare against a company's earnings to judge whether it's cheap or expensive.
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