Enterprise value: drag cash
Drag the handle to set surplus cash. Equity and interest-bearing debt are held still, so the headline enterprise value moves only because cash comes off. Zero the cash and EV is equity plus the full debt. Against a fixed EBITDA that also lifts the multiple.
Enterprise value
$130,000,000
EV / EBITDA
13.0x
Net debt is $30,000,000. Cash you could hand back comes off EV one for one. Illustrative arithmetic, not a bid or advice.
Equity and debt
$100,000,000 and $40,000,000, held still.
In short
- Drag the handle right for more surplus cash and a lower EV.
- Read enterprise value, then EV over EBITDA.
- Set cash to zero: net debt is the full debt line.
- Focus the handle and use the arrow keys to step cash.
The operations, before who funded them
Enterprise value is equity plus interest-bearing debt minus surplus cash. A buyer of the whole firm pays the equity holders, takes on the debt, and inherits the cash. The cheque that prices the operations is EV, not equity value.
How enterprise value works is the identity, with the enterprise value calculator under the answer. Enterprise value against equity value is why those two numerators are not interchangeable.
Cash is not always surplus
The identity subtracts cash because the teaching sheet treats it as money that could be taken out tomorrow. Operating cash that has to sit in the business is not surplus. Subtracting it anyway understates EV.
EBITDA sits underneath as a flow, not a stock. It is not free cash flow. It is a convenient denominator for a multiple once you already have an enterprise value.
A DCF of the firm should meet this object
The DCF calculator produces this same stock from discounted unlevered cash flow. A DCF built on unlevered flows compared with equity value prices the debt twice. How DCF works is that present value.
Common questions
Why does more cash lower EV?
Because surplus cash is not part of the operations. Subtract it and the residual that prices the going concern falls one for one.
Is EV/EBITDA a price?
No. It is a translation of this sheet into a ratio. Two firms can print the same multiple for reasons that have nothing to do with being the same business.
Is this a bid?
No. It is equity plus net debt on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.