Also called EV
Enterprise value
The value of the whole operating business, before asking who has a claim on it. Debt holders are paid before shareholders, so this is not yet what the shares are worth.
Updated 2026-09-03
How it is calculated
Enterprise value = sum of PV + PV of terminal value
Enterprise value is what the whole operating business is worth, before asking who has a claim on it. It is the value of the machine itself, independent of how it was financed. Two identical factories are worth the same as businesses even if one was bought with cash and the other with a mortgage.
enterprise value = sum of discounted cash flows + discounted terminal value
In a DCF, enterprise value is what the model builds directly. equity value is derived from it afterwards.
This is why the bridge from enterprise value to what the shares are worth runs through net debt. Lenders are paid before shareholders, so their claim comes off the top. A company with heavy debt can have a large, healthy business and very little value left for its owners.
Verizon on 2026-09-05. A $405B business, but $139B of it belongs to lenders. The row was marked low confidence because the discount rate had to be floored.
Why it is the right basis for comparison
Because market cap alone is misleading between companies with different balance sheets. Two businesses with identical operations and identical market caps are not equally priced if one carries $50B of debt. Multiples built on enterprise value, such as EV to EBITDA, are comparable across capital structures in a way price-to-earnings is not.
See also
- Equity value — What is left for shareholders once the lenders have been paid.
- Net debt — Positive means a net borrower, negative means net cash. Subtracted from enterprise value to reach what shareholders own.
- Sum of PV — Every discounted free cash flow across the explicit projection horizon, added up. Everything after the horizon is handled by the terminal value instead.
- Terminal value — Everything the business is worth beyond the projection horizon, set by Gordon growth or an exit multiple and then discounted back. It is usually the majority of the answer.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
