Enterprise value

Definition

The whole business to everyone who funded it: equity plus debt, less cash.

Why It Matters

A multiple quoted on EBITDA usually lands on enterprise value rather than on the equity check you write, and treating the two as one number misprices the deal by whatever debt is on the books. Move between them deliberately: subtract the debt you assume, add the cash you keep. On main-street deals quoted cash-free and debt-free the two collapse into each other, which is exactly why the distinction gets forgotten on the first deal where they do not.

In numbers: A shop with $500,000 of EBITDA at a 3.5x multiple is a $1,750,000 enterprise value; assume $250,000 of equipment debt and keep $50,000 of cash and the equity you buy is about $1,550,000.