What Is Enterprise Value (EV)

Patrick Curtis

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Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

Enterprise Value (also known as EV) is a metric that attempts to reflect the market value of a firm. It can be used as an alternative to market capitalization.

Essentially, Enterprise Value attempts to provide a more accurate valuation aimed at a buyer. Whilst a firm's market capitalization will indicate share price x share quantity, the firm may have a lot of debt which the acquirer would need to pay off (thereby adding the price of the transaction).

The calculation for Enterprise Value is:

  • Market Capitalization + Debt + Minority Interest + Preferred Shares - Cash & Cash Equivalents

Enterprise Value is a far better metric when considering mergers and acquisitions as it provides a 'truer' valuation on a company by considering more factors than market capitalization, the main one being debt.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.