In 30 seconds
- Enterprise value (EV) is the price of the whole business: market cap plus debt minus cash, plus minority interests and preferred stock.
- A heavily indebted company has an EV far above its market cap; a company with net cash has one below it.
- It's used divided by operating profit: EV/EBIT and EV/EBITDA let you compare companies carrying very different amounts of debt.
- If the P/E and EV/EBIT tell different stories, look for the debt or the one-off profit that explains the gap.
- Kaplio judges EV/EBITDA against each company's own historical average: cheap below 90% and expensive above 110%.
Introduction
On December 31, 2025, a share of AT&T closed at $24.84. With earnings per share of $3.04 for 2025, its P/E stood at 8.2: on the face of it, a bargain. But anyone trying to buy all of AT&T that day wouldn't just pay for the shares, worth about $174,000 million. They would also inherit $136,100 million of debt. Add and subtract what belongs in the sum and the real price of the business came to roughly $308,000 million, close to double what the stock market said. That second number is enterprise value.
Explanation
Enterprise value (EV) is what it would cost to buy a whole business: the shares at market price, plus the debt you take on, minus the cash you find inside. Market capitalization only tells you what the shares are worth. EV tells you what everything that produces the operating profit is worth, whether the shareholder paid for it or the bank did.
The classic analogy is a house. Say you buy a $300,000 home and take over the seller's $200,000 mortgage. You hand the seller $100,000. But the house has cost you $300,000, because the mortgage is now yours to pay. If the seller also leaves $10,000 in a drawer, your net cost drops to $290,000. Market cap is what you pay the seller; EV is what the house costs you.
How to calculate it
Start with market capitalization: share price times shares outstanding. Add debt, short- and long-term, because whoever buys the company will have to repay it. Subtract cash and short-term investments, because that money goes to the buyer and could be used to pay down the debt. Those last two figures together are net debt. When net debt is negative, the company holds more cash than debt and its EV lands below its market cap.
Two adjustments get forgotten all the time. Minority interests are added: if a company consolidates a subsidiary it doesn't own 100% of, its operating income includes all of that subsidiary's profit, so the price has to include all of it too. Preferred stock is added as well, because it's a claim that ranks ahead of common shares.
What it's for
EV on its own tells you very little. It earns its keep when you divide it by a profit figure that belongs to all the providers of capital. The two most common ratios are EV/EBIT (enterprise value divided by operating income) and EV/EBITDA, which adds depreciation and amortization back to EBIT. The logic holds together: on top sits the price of all the capital, and below it a profit before interest, which is shared between shareholders and lenders. The P/E ratio, by contrast, divides the share price by the shareholders' earnings, and that's why it can't see debt.
Which of the two should you prefer? For comparing companies, EV/EBIT. EBITDA ignores the fact that machines, cell towers and servers wear out and have to be replaced. Joel Greenblatt chose EV/EBIT for his "magic formula" precisely because it doesn't hide that cost.
Formula
EV = Market capitalization + Debt − Cash and short-term investments + Minority interests + Preferred stock
Market capitalization = Share price × Shares outstanding
Net debt = Debt − Cash and short-term investments
EV/EBIT = EV / Operating income; EV/EBITDA = EV / (Operating income + Depreciation and amortization)
Example
The table compares the EV/EBITDA of the big US telecom and cable operators on a trailing-twelve-month basis, as of October 4, 2026. Read each figure as the number of years of operating profit before depreciation you'd pay if you bought the whole company, debt included. Comcast trades at 4.7 times. AT&T at 5.8. Verizon at 7.9. T-Mobile at 10.2.
Step by step: AT&T on December 31, 2025 (balance sheet and income statement from its 2025 Form 10-K, in millions of dollars):
1. Shares outstanding: 7,000.6 million, the figure on the cover of the 10-K (as of January 28, 2026).
2. Multiply by the $24.84 closing price on December 31, 2025 and you get a market value of about $173,900 million.
3. Add debt: 127,089 long-term + 9,011 short-term = 136,100.
4. Subtract cash: 18,234.
5. Add minority interests: 15,958.
6. EV = 173,900 + 136,100 − 18,234 + 15,958 = about 307,700.
Now the ratios. Operating income for 2025 was 24,162 and depreciation and amortization came to 20,886. EV/EBIT = 307,700 / 24,162 = 12.7. The P/E of 8.2 made AT&T look like a cheap stock; an EV/EBIT of 12.7 puts it at an ordinary market valuation.
What about EV/EBITDA? The table shows 5.8 for AT&T, but it's a different snapshot: the October 2026 price, trailing-twelve-month results and the enterprise value recipe Kaplio uses on every stock page. Run the division with the walkthrough figures, which also add minority interests, and you get something a little higher. Neither number is wrong. What you can't do is compare one company built with one recipe against another built with a different one.
Your turn. Alphabet on December 31, 2025: the Class A shares closed at $313, and there were 12,088 million shares across all classes. Its 2025 10-K shows $49,085 million of debt and $126,843 million of cash and short-term investments. Work out the market cap (roughly, using the Class A price for every share) and the EV.
Before you look: do you think Alphabet's EV will come out above or below its market cap? The answer is in the real case further down.
Real-data example
| Company | Ticker | EV/EBITDA |
|---|---|---|
| AT&T Inc. | T | 5.8 |
| Verizon Communications Inc. | VZ | 7.9 |
| T-Mobile US, Inc. | TMUS | 10.2 |
| Comcast Corporation | CMCSA | 4.7 |
How to read it
How to read it
Kaplio judges each company's EV/EBITDA against its own average over the last five or ten years. It's the most honest way to tell whether a stock is expensive today relative to what it usually costs. The absolute ranges in the table are only a guide for a first screen.
| Measure | Cheap | Fair | Expensive |
|---|---|---|---|
| EV/EBITDA vs. its historical average (Summary criterion) | below 90% of its average | between 90% and 110% | above 110% |
| EV/EBIT, mature company | under 10 | 10-18 | over 18 |
| Telecom and utilities (EV/EBITDA) | under 6 | 6-9 | over 9 |
| Software and platforms (EV/EBIT) | under 18 | 18-30 | over 30 |
A low multiple can be an opportunity, or a sign that the market expects profits to fall. And don't use EV for banks and insurers: their debt is their raw material, not a way of financing themselves.
Pitfalls and limitations
1. Leases. Many databases leave lease liabilities out. AT&T had $22,524 million of them at the end of 2025; count them and its EV tops $330,000 million. For companies with lots of rented sites, such as retailers or restaurant chains, the difference can flip the conclusion.
2. Cash that isn't free. Subtracting all the cash assumes the buyer can use it. If it's trapped abroad, needed to run the business day to day or held back by a regulator, EV comes out lower than it really is.
3. Mismatched dates. The price is today's and the debt comes from the last balance sheet. If the company has made a debt-funded acquisition in between, your EV is out of date. Always check the date on both numbers.
4. Forgotten pensions and minority interests. A large pension deficit works like debt. Leaving out minority interests is subtler: EBIT includes the whole subsidiary and EV doesn't. Without them, the multiple looks cheaper than it is.
5. EBITDA isn't cash. A low EV/EBITDA misleads in a business that spends heavily on replacing equipment. That's why at AT&T, where depreciation is almost as big as profit, EV/EBIT is the figure that really counts.
Case in point: AT&T and Alphabet, two sides of the same calculation
If you did the exercise, you got a market cap for Alphabet of about $3.78 trillion ($3,783,500 million) on December 31, 2025. Its cash and short-term investments exceeded its debt by $77,758 million, so its EV came to about $3.71 trillion: below what its shares were worth. Here the usual rule that EV exceeds market cap breaks down, and that's good news: whoever buys the business gets part of the price back in cash.
With operating income of $129,039 million in 2025, its EV/EBIT was 28.7. Its P/E, $313 divided by $10.81 of earnings per share, was 29.0. Almost identical: with no net debt, P/E and EV/EBIT tell the same story.
AT&T was the opposite. A P/E of 8.2 and an EV/EBIT of 12.7. There are two reasons. The first is debt: $136,100 million that the P/E doesn't see. The second is subtler. AT&T's pre-tax income in 2025 ($27,007 million) was higher than its operating income (24,162). Part of the net income behind the P/E came from outside the core business, and that inflates the denominator. EV/EBIT looks only at the business. When P/E and EV/EBIT tell such different stories, the question to ask is always the same: what debt or what one-off profit am I missing?
To go deeper into the multiple private equity funds lean on most, see the EV/EBITDA lesson, and to find out whether the business you're buying earns a good return on its capital, the ROIC lesson.
Practice on Kaplio
Frequently asked questions
What is the formula for EV?
Start with market capitalization: share price times shares outstanding. Add short- and long-term debt, subtract cash and short-term investments, then add minority interests and preferred stock. Debt and cash come from the latest balance sheet; the price comes from whichever day you pick. Debt minus cash, on its own, is net debt.
What is considered a good enterprise value?
There's no good or bad EV on its own: it's a price tag, and a bigger company simply has a bigger one. What you judge is EV divided by profit. Kaplio compares each company's EV/EBITDA with its own five- or ten-year average: below 90% of that average reads as cheap, above 110% as expensive.
What is enterprise value vs market cap?
Market cap is the value of the shares alone: share price times shares outstanding. Enterprise value is the price of the whole business, with debt added and cash subtracted. A heavily indebted company such as AT&T has an EV well above its market cap; one with net cash, like Alphabet at the end of 2025, has an EV below it.
Are EV and EBITDA the same?
No. EV is a price: what it would cost to buy the whole company, debt included. EBITDA is a profit figure: operating income before depreciation and amortization. Investors divide one by the other, and EV/EBITDA tells you how many years of that profit you'd pay for the entire business. AT&T traded at 5.8 times as of October 4, 2026.