valuation
Enterprise value (EV, also TEV or firm value) is the capital-structure-neutral worth of the operating business, available to all providers of capital. It is the quantity that EV/EBITDA and unlevered DCFs are built to explain.
Enterprise value answers a different question from share price. It asks what the operations are worth to debt and equity together, as if you acquired the whole capital structure and refinanced it. That is why league-table deal values and precedent transactions are usually quoted on an EV basis: two firms with the same operations but different leverage should not look like different businesses in the headline multiple.
Damodaran's teaching identity is the cleanest starting point: firm value is the market value of operating assets, equivalently the market value of claims on those assets.
A widely used practitioner formula is:
EV = equity value + net debt + preferred equity + non-controlling interest − non-operating surplus assets
Where net debt is typically interest-bearing debt plus lease liabilities (IFRS 16) minus cash and cash equivalents (and surplus marketable securities). Equity value for a listed firm is market capitalisation; for a private firm it is the modelled worth of ordinary shares.
| Building block | Include in EV? |
|---|---|
| Ordinary equity (diluted) | Yes (add) |
| Interest-bearing debt | Yes (add) |
| IFRS 16 lease liabilities | Usually yes (add) |
| Cash and cash equivalents | Yes (subtract) |
| Non-controlling interest | Yes (add), if EBITDA is consolidated |
| Associates / JVs (equity-accounted) | Usually strip from EV if their earnings are not in EBITDA |
| Surplus property or investments | Subtract if they sit outside operations |
EV/EBITDA then divides this EV by operating EBITDA. Inconsistency between the numerator's perimeter and the denominator's earnings is the classic error.
Verde Logistics is invented, for illustration only.
| Input | €m |
|---|---|
| Diluted market capitalisation | 120 |
| Bank debt + bonds | 45 |
| Lease liabilities | 12 |
| Cash | 8 |
| Non-controlling interest | 3 |
| Surplus listed securities (non-operating) | 2 |
| Enterprise value | 120 + 45 + 12 − 8 + 3 − 2 = 170 |
If LTM EBITDA is €20m, EV/EBITDA is 8.5x. A cash-free, debt-free offer for the same operations would be pitched off that €170m, not off the €120m market cap.
Offers are usually "cash-free, debt-free" on an EV basis, with a locked-box or completion mechanism to deliver a normalised cash and working-capital level. Financial sponsors size debt capacity off EV and EBITDA; strategics compare EV to synergy-adjusted cash flows. Large announced transactions are routinely described as an enterprise value so readers can compare them with comparable companies and other deals rather than with levered market caps.
EV is only as good as the classification of "operating" versus "financing". Hybrid instruments, earn-outs, pensions and contingent consideration require judgement. For banks and insurers the EV construct is often replaced by equity-based tools (P/B, embedded value) because deposits and technical reserves are the product, not a side capital structure.
Dazur prices processes on enterprise value first, then shows the equity cheque after a transparent net-debt bridge. That is the language buyers already use in IC memos. Headline equity "asks" without EV and net debt waste cycles; a clean EV with a diligence-ready bridge is what actually moves a process.