Lesson 5 of 7
What belongs in enterprise value
Enterprise value is a market value plus debt less cash. What that leaves out, why two negatives look cheap, and the classes it is refused for.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- An enterprise value is what buying the whole business costs: the market value of the equity, plus the debt assumed, less the cash that comes with it.
- A negative enterprise value divided by a negative flow produces a small positive multiple, which is the cheapest-looking number on any screen and means nothing.
- Both sides have to be positive for the multiple to exist, and for whole classes of company it is refused rather than computed.
The point of an enterprise multiple is to compare two companies with different debt loads on the same footing. It works when the bridge from market value to enterprise value is complete, and the bridge is where the errors live.
From market value to enterprise value
- Market value of the equity$355.3bn
- Plus total debt+$35.0bn
- Less cash and short-term investments−$9.9bn
- Enterprise value= $380.4bn
What this product's bridge contains, and what it does not
ValueScreener computes an enterprise value as market capitalisation plus total debt less cash, and nothing else. That is the common definition and it omits three things a full bridge would carry: non-controlling interests, preferred stock, and unfunded pension obligations.
Each omission understates the cost of owning the whole business where it exists. A company consolidating a subsidiary it does not wholly own reports all of that subsidiary's EBITDA while its market value covers only the parent's share, so the multiple reads low. Check the minority interest line on the balance sheet before comparing two companies where one has one.
The lease obligation is a different trap and a bigger one: adding a lease liability to debt without adding rent back to EBITDA charges the same obligation twice. That case has its own lesson and is not repeated here.
Two negatives make a bargain
This is the failure a sign check on the result cannot catch.
Five times looks like the cheapest company on the screen. It describes a business that is losing money and whose market value is below its net cash. The multiple is positive only because both halves are negative.
The product tests each side separately for exactly this reason: the enterprise value must be positive and the flow must be positive, or the multiple is not published. A result that looks sane is not evidence that its inputs were.
The classes it is refused for
The enterprise value to EBITDA cohort built on 2026-09-15 covers 2,016 US companies and excludes 620 as not applicable because they are banks, capital markets firms, insurers or mortgage REITs.
The reason is the same one that removes a cost of capital for a lender. Deposits and borrowings are a bank's raw material, so adding them to its market value does not describe what a buyer pays, and subtracting its cash subtracts the inventory. For those companies the answer is an equity-side multiple, not a better bridge.
Where the multiple still earns its place
Comparing two companies with different capital structures, because it prices the whole business rather than the residual. Comparing across tax regimes, because it sits above tax. And as a cross-check on a price to earnings ratio: when the two disagree sharply, the gap is usually leverage, and that is worth knowing before either number is quoted.
Check yourself
Why does the product refuse an enterprise multiple unless both the enterprise value and the flow are positive?
- Because negative numbers cannot be displayed
- Because a negative enterprise value over a negative flow gives a small positive multiple that reads as the cheapest company on the screen
- Because EBITDA is never negative in practice
Show the answer
Answer: B.
Testing the sign of the result cannot see this case. Each side has to be tested on its own.A company consolidates a subsidiary it owns 60 percent of. What does that do to a simple market value plus debt less cash bridge?
- Nothing, consolidation does not affect valuation
- It understates the enterprise value, because all the subsidiary's EBITDA is counted while only the parent's equity is
- It overstates the enterprise value
Show the answer
Answer: B.
A complete bridge adds the non-controlling interest. Without it the multiple reads lower than the economics support.Why is the multiple refused for banks and insurers?
- Their EBITDA is not disclosed
- Their borrowings and deposits are raw material, so adding them to a market value does not describe the cost of the business
- They are regulated
Show the answer
Answer: B.
For a lender, financing is the product. The equity-side measures replace the enterprise-side ones entirely.Sources
- Procter and Gamble, Form 10-K, fiscal year ended 30 June 2026, filed 2026-08-04: total debt, cash and diluted share count behind the bridge.
- The product's public distribution endpoint: the enterprise value to EBITDA cohort of 2,016 US companies built 2026-09-15, and its stated exclusions.
- Damodaran, Investment Valuation: the full enterprise value bridge, including minority interests and cross-holdings.
What this leaves out
- The bridge shown is the one the product computes. It carries no non-controlling interest, no preferred stock and no pension deficit, and those have to be checked in the filing.
- The negative enterprise value example uses round invented numbers so the arithmetic can be followed.
- Market values here are built on a stored closing price, not a live quote.
- Nothing here is advice about any security.