What Is Enterprise Value?
Enterprise Value (EV) represents the total value of a company — what it would cost to acquire the entire business outright. Unlike market capitalization (which only reflects equity), EV accounts for debt obligations and subtracts available cash.
Formula
Enterprise Value = Market Cap + Total Debt - Cash and Equivalents
For a company with $50M market cap, $10M debt, and $5M cash:
EV = $50M + $10M - $5M = $55M
Why EV Instead of Market Cap?
| Scenario | Market Cap | EV | Which Is More Accurate? |
|---|---|---|---|
| Company with $0 debt, $5M cash | $50M | $45M | EV (buyer gets the cash) |
| Company with $20M debt, $0 cash | $50M | $70M | EV (buyer assumes debt) |
| Identical companies, different capital structures | Same P/E | Different EV | EV normalizes structure |
EV is called "capital structure neutral" because it captures the full economic cost of ownership regardless of how the company is financed.
EV-Based Valuation Ratios
| Ratio | Formula | Best For |
|---|---|---|
| EV/Revenue | EV / Annual Revenue | Pre-profit, high-growth SaaS |
| EV/EBITDA | EV / EBITDA | Profitable companies |
| EV/FCF | EV / Free Cash Flow | Cash-generative businesses |
EV for Private Companies
For private companies (like most on EvolC), EV is estimated using:
EV = (Revenue or EBITDA or SDE) × Appropriate Multiple
Since there is no public share price, the "market cap" component is derived from comparable transactions or investor pricing.
Enterprise Value in AI-Run Companies
AI-run companies often have clean capital structures — minimal debt, modest cash balances, and no complex equity instruments. This makes EV calculations straightforward and closer to market cap.
The interesting nuance: AI-run companies may have significant intangible value in their trained models, prompt libraries, and automated workflows that is not captured on a balance sheet but directly impacts EV through higher expected cash flows.
On EvolC, Enterprise Value provides the foundation for comparing AI-run companies of different sizes and structures on an apples-to-apples basis.