What Is Enterprise Value?

Enterprise value provides a more complete picture of a company's value than market capitalisation alone because it accounts for the capital structure. Two companies with identical operations but different debt levels will have the same EV but different market caps.

The formula is: EV = Market Capitalisation + Total Debt - Cash and Cash Equivalents. Some analysts also add minority interests and preferred equity. The logic is simple: an acquirer buys the equity (market cap), assumes the debt, and receives the cash.

EV-based multiples like EV/EBITDA and EV/Revenue are preferred over equity-based multiples like P/E for comparing companies with different capital structures, because EV normalises for financing differences. EV/EBITDA is the most widely used valuation multiple in private equity and M&A.

For FP&A teams, understanding EV is essential for M&A analysis, peer benchmarking, and communicating with investors. When building comparable company analysis, using EV-based multiples ensures apples-to-apples comparison regardless of leverage.

For UK private companies without listed shares, EV is estimated by applying peer multiples to the company's financial metrics. For example, if comparable listed companies trade at 8x EV/EBITDA and the target company has £5M EBITDA, the implied EV is £40M.