Definition
EV, or enterprise value, is an analytical valuation of a business that considers not only the market value of shares but also the financing structure. In a simple model, add interest-bearing debt to capitalization and subtract cash. More complete calculations may include additional components, so the formula should be disclosed.
Example
If hypothetical capitalization is 900 thousand roubles, debt is 300 thousand and cash included in the calculation is 100 thousand, simplified EV is 1.1 million roubles. This is not the exact amount of a future transaction: a buyer may value assets, restrictions on cash and other obligations differently.
Distinction and limitation
Do not confuse EV with market capitalization, accounting equity or the cash balance in an account. Not all cash can be freely withdrawn from a business, and not all obligations are treated as debt in the same way. When comparing companies, an investor checks the market-data date, group composition, leases and consistency with the profit measure used.