Enterprise value
Enterprise value is the value of a business’s core operations, independent of how that business happens to be financed. It represents what it would cost to acquire the whole operating entity — commonly calculated as equity value plus debt, minus cash — and is the figure most often used when comparing businesses or applying an earnings multiple.
A business’s value can be described in two related but different ways: enterprise value and equity value. Enterprise value looks at the operating business itself — its ability to generate revenue and profit — without regard to how much debt or cash currently sits on its balance sheet.
Why buyers use enterprise value for comparisons
Two businesses with identical operations can carry very different debt loads, which makes their equity values hard to compare directly. Enterprise value strips financing decisions out of the picture, so a multiple of EBITDA applied to enterprise value gives a cleaner, apples-to-apples comparison across similarly sized businesses.
Getting from enterprise value to what the seller receives
Enterprise value is not the cheque a seller walks away with. Debt gets paid off, cash on the balance sheet typically stays with — or is credited to — the seller, and working capital adjustments apply on top. The path from enterprise value to actual proceeds is a negotiated set of steps, not a single subtraction.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryGetting a Business Valuation Before You List
- 02Treadstone LawLegal commentaryHow Much Is a Small Business Worth? Valuation Basics for Ontario Buyers
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