When valuing a company there are several choices. Stock exchanges tend to quote firms on the basis of their market capitalisation – the number of shares in issue multiplied by the current share price.
However this measure doesn’t explicitly consider the impact of a firm’s decision to take on debt finance nor does it consider the value of any cash held by the firm. Enterprise value tries to solve this by valuing a firm using the market value of its debt, net of any cash on its balance sheet, plus its equity. So if a firm has £50m of debt in issue and £50m of equity, its enterprise value (EV) is £100m. This can be used in a valuation measure preferred by some analysts – EV/EBITDA.