Enterprise value: the price of the whole company
Market value tells you the price of all the shares. But anyone buying the whole company also takes on its debt and gets the cash it holds. So, in the simplified formula, enterprise value (EV) = market value + debt − cash. The full formula can also add preferred equity and non-controlling interests.
What is EBITDA?
EBITDA is earnings before interest, taxes, depreciation and amortization. It measures operating performance before financing choices (interest), taxes and the spreading of asset costs over the years affect it. Starting from operating profit (EBIT), you usually add back depreciation and amortization to reach EBITDA, so it is not operating profit itself, and it is not cash flow. That makes companies with different financing easier to compare.
The multiple = EV ÷ EBITDA: how many times EBITDA the whole enterprise value, with its debt and cash, comes to.
Example: same market value, different picture
Two invented companies, each with a market value of EGP 800 million and EBITDA of 150 million. The difference: A owes 400 million, while B holds 200 million in cash and has no debt.
Buying all of A effectively costs 1,200 million; buying B, only 600 million. Debt and cash changed the picture completely, even though market value is identical.
Compare companies in one sector
This multiple says more when you compare companies in similar businesses. Start from the sectors page and pick companies in the same line of work.
Check yourself
1. Market value 500, debt 300, cash 100 (millions). What is EV?
2. EV is 700 million and EBITDA is 100 million. What is the multiple?
Summary
- In the simplified formula: EV = market value + debt − cash.
- The multiple = EV ÷ EBITDA, and it brings debt and cash into view.
- It does not fit banks, and EBITDA is not the cash the company keeps.