Enterprise value (EV), attempts to measure the value of a company's business rather than the company. It answers the question "what would it cost to buy this business free of its debt and other liabilities?"
EV is calculated by adding together:
- the market capitalisation of the company
- the value of its debt financing (bonds and bank loans, not items such as trade creditors)
- the value of other liabilities such as a deficit in the company pension fund
and subtracting the value of liquid assets such as cash and investments.
The calculation is made more complex where there are minority stakes in associates and subsidiaries: see EV/EBITDA. These adjustments also apply to other valuation measures using EV such as EV/EBIT and EV/EBITA.