Enterprise Value (EV)
Definition
Enterprise value is the value of a company's core operating business attributable to ALL capital providers. The standard bridge: EV = equity value + total debt + preferred stock + noncontrolling (minority) interest − cash and cash equivalents. Some practitioners add other debt-like items (e.g., unfunded pensions, certain leases) — conventions vary and should be applied consistently across comps.
Cash is subtracted because it is a non-operating asset (and a buyer effectively acquires it, reducing net cost); debt is added because a buyer assumes or refinances it. Intuitively, EV is the theoretical takeover price of the operations.
EV is capital-structure-neutral, so it pairs only with metrics available to all investors: revenue, EBITDA, EBIT, unlevered FCF — never net income or levered FCF.
Why interviewers ask
"Walk me through the equity value to enterprise value bridge" and "can enterprise value be negative?" (yes — if cash exceeds equity value plus debt, rare but possible) are staples. The core trap is pairing EV with levered metrics (EV/Net Income is wrong) or forgetting minority interest and preferred in the bridge.
Related terms
Interviews don't test definitions — they test recall under pressure.
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