Enterprise Value

If you're getting ready for a finance interview, you'll almost always come across a key term: Enterprise Value (or just EV). It might sound big and complicated at first, but once you understand it, it actually makes a lot of sense.

Put simply: Enterprise Value shows the total value of a company in the way a buyer would look at it if they wanted to purchase the entire business.

Imagine someone is buying a company outright. They wouldn't just look at the stock price. They’d take on the company’s debt but also benefit from its cash assets. That’s exactly what Enterprise Value reflects: Stock value + Debt – Cash balance.
 

How to Calculate Enterprise Value

There’s a simple formula to calculate Enterprise Value:

Let's take a closer look at the different components it includes: 

• Equity Value: This is the total value of all shares, meaning share price multiplied by the number of shares outstanding.
• Debt is added because a buyer would take over all loans and other financial obligations when buying the company.
• Cash is subtracted because the buyer gets access to that money after the purchase – for example, to pay down debt or invest in the business. So you “pay” for it upfront, but you get it back right away.

If a company carries significant debt, its Enterprise Value will be higher, since a buyer must assume that debt as part of the purchase. Conversely, if the company holds a large amount of cash, the Enterprise Value will be lower, as the buyer effectively receives that cash and doesn’t need to pay for it again.

Example how to calculate the Equity Value:

Let’s say you’re working as an intern in investment banking and need to estimate the value of a possible acquisition target for a pitch deck. You’re given the following info:

• The share price is 20 €
• There are 10 million shares outstanding
• The company has 100 million € in debt (like loans or bonds)
• It also holds 30 million € in cash that’s immediately available

Now use the formula:

Enterprise Value = Equity Value + Debt – Cash

First, calculate the Equity Value:

20 € × 10 million shares = 200M €

Then plug everything into the formula:

Enterprise Value = 200M € + 100M € – 30M € = 270M €

✅ The Enterprise Value is 270M €. That’s all there is to it! 
 

Why Is the Enterprise Value Important?

The Enterprise Value (EV) shows what a company really costs if you wanted to buy the whole thing (including its debt, but minus any cash it already has). Unlike the regular stock market value, EV takes the full capital structure into account. That makes it great for comparing companies with different types of financing.

In practice, Enterprise Value is primarily used to calculate valuation multiples. The most common ones are:

• EV/EBITDA – How much are you paying compared to the company’s operating profit?
• EV/Sales – How much are you paying for each euro of revenue?

These numbers help you quickly see whether a company looks expensive or cheap compared to its competitors – no matter how it’s financed. That’s why Enterprise Value is such a key concept in both interviews and real-life finance work.
 

Typical Finance Interview Questions About the Enterprise Value

Here are some common questions (with sample answers) that often come up in interviews at investment banks and finance firms. What really matters is that you understand the concept and can explain it in your own words.

What's the difference between Enterprise Value and Equity Value?

Equity Value is the market value of a company’s shares, so basically what the shareholders “own.”  Enterprise Value shows the total cost of buying the entire company – including debt, minus cash.

Why is cash subtracted from when calculating the Enterprise Value?

Cash is subtracted when calculating Enterprise Value because the buyer gets to keep the company’s cash after the deal. That cash can be used to pay down debt or reinvest, so it effectively reduces the net cost of the acquisition. It’s like paying for something but getting part of your money back immediately. In that sense, the company’s cash acts like a discount on the purchase price.

What does the Enterprise Value tell you?

EV shows the real value of a company from a buyer’s point of view, so how much it would cost to fully take it over. It includes not just the shares, but also debt and cash.

Can the Enterprise Value be negative?

A negative Enterprise Value is rare but can happen when a company’s cash exceeds its market value and it has little or no debt. This might occur if the company is undervalued, newly funded, or in distress but still holds cash. In such cases, investors may have little confidence in its future, driving the stock price below the value of its cash. As a result, the buyer would technically be paying less than the company’s net cash.

👉 You can practice these and many more questions with our Case Library, so check it out now!

Key Takeaways

Enterprise Value shows what a company is truly worth from the perspective of a potential buyer. It takes into account not just the value of the shares, but also the company’s debt and available cash.

This makes Enterprise Value especially useful when comparing different companies objectively (for example, using valuation metrics like EV/EBITDA).

It also helps you understand how “expensive” a company really is, no matter how it’s financed.

If you understand how EV is calculated and can clearly explain the difference between Enterprise Value and Equity Value, you already have a big advantage in any interview!