Enterprise value

The value of the whole business - what lenders and owners together have claims on. Equity value plus net debt.

Example

Harbour Press at a 10.25 times EBITDA multiple has an enterprise value of 20,500,000, of which 4,000,000 belongs to lenders.

Important

Multiples built on pre-interest figures such as EBITDA produce enterprise value, never equity value. Reporting one as the other overstates the owners' share by the whole of net debt.

Related terms

• Equity value — The value of the owners' share alone - enterprise value less net debt. What a buyer of the shares is actually paying for.
• Net debt — Borrowings minus cash. The measure of indebtedness that accounts for the money already sitting in the bank to repay it.
• EV/EBITDA — Enterprise value divided by EBITDA - the most common multiple for comparing whole businesses, because both parts are calculated before the effects of borrowing.

Lessons that explain it

• Three engines: profit growth, debt paydown and a higher exit multiple — Buyout returns come from growing earnings, using cash flow to repay debt, and selling at a higher valuation multiple - and only the first is reliably within the manager's control. (13 min)
• The entry multiple is set by auctions, and the fund's value by its own appraisals — Buyouts are priced as a multiple of earnings in competitive sales, and between purchase and exit the fund's value rests on appraisals that move far more smoothly than markets. (11 min)
• Appraising one company: the figures, and the growth already in the price — A practical pass over one listed business - what it earns, what it owes, what cash it keeps, and what the current price is already assuming. (14 min)
• Comparables and multiples: what the market is already paying — A multiple is not a shortcut past valuation. It is somebody else's valuation, compressed into one number, and using it means inheriting every assumption inside it. (12 min)
• What each method is for, and what to do when they disagree — Three methods on one asset produce three different answers, and the disagreement is the most useful output. Averaging it away destroys the only thing the exercise produced. (10 min)

All 578 terms in the Investing glossary