# Enterprise Value (EV)

### Written byTrue Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 22, 2022

## Enterprise Value (EV) Definition

Enterprise Value (EV) is a significant point of data, and one that would be crucial to have on hand if you were attempting to assess the market value of an individual company. Which in other words, a company's enterprise value is equal to the amount of money needed to purchase the company.

## Formula for Enterprise Value

The formula used to calculate enterprise value is:

EV = market capitalization (MC) plus Total Debt minus Cash

Where: MC is determined by multiplying the share price by the outstanding shares, which are shares that have already been sold.

## Purpose of the EV Metric

As a result, EV is a metric that effectively paints a picture of a company's worth as it not only includes the company's market cap, which other competing metrics tend to focus on solely, but also what debts and unassigned cash the company might have.

## Example of EV

Take for instance, Company X, which has a market cap of \$100 million, \$50 million in cash but is carrying \$40 million in debt. Run these numbers through the formula, and the Company X's EV is equal to \$90 million.

## Concluding From Enterprise Value

Lastly, something to keep in mind when using EV is that the formula assumes that debt is bad. But debt isn't always bad.

Some companies, who in an effort to grow will incur loads of debt as a result of expansion intended purchases that then negatively affects their EV score. Which may lead one to move away from a company that actually, could have been a very worthwhile investment.

## Enterprise Value (EV) FAQs

### What does EV stand for?

EV stands for a company's Enterprise Value in finance.

### What is Enterprise Value?

A company’s Enterprise Value is equal to the amount of money needed to purchase the company.

### What is the formula to calculate a company's Enterprise Value?

The formula used to calculate enterprise value is: EV = market capitalization (MC) plus Total Debt minus Cash. Where MC is determined by multiplying the share price by the outstanding shares, which are shares that have already been sold.

### What does a company's Enterprise Value show?

Enterprise Value (EV) is a significant point of data, and one that would be crucial to have on hand if you were attempting to assess the market value of an individual company.

Debt isn’t always bad. Some companies who, in an effort to grow, incur loads of debt as a result of expansion that negatively affects their EV score. Which may lead one to move away from a company that actually could have been a very worthwhile investment.