Enterprise value is the number serious buyers and analysts actually use to price a company — not market capitalization alone. It answers the question, "what would it really cost to buy this entire business?" by folding in the debt a buyer takes on and the cash they get back.
Why EV, not market cap
Market cap only prices the equity — what current shareholders own. But a buyer acquiring the whole company also inherits its debt obligations and, at the same time, gains access to its cash reserves. Two companies with identical market caps can have very different enterprise values if one carries heavy debt and the other sits on a large cash pile. EV corrects for this by adding debt and subtracting cash, giving a more complete picture of total acquisition cost.
What debt and cash do to takeover cost
Every dollar of debt raises enterprise value dollar-for-dollar, because the buyer must either pay it off or continue servicing it. Every dollar of cash lowers enterprise value, because the buyer can use that cash immediately after closing — effectively discounting the purchase price. A company with more cash than debt is in a 'net cash' position, and its enterprise value can fall below its market cap.
Reading the EV/EBITDA multiple
EV/EBITDA divides enterprise value by EBITDA to produce a valuation multiple that's comparable across companies regardless of how much debt they carry or how they're taxed. A multiple of 6x means the company is valued at six times its annual EBITDA. What counts as a reasonable multiple varies widely by industry, growth rate, and market conditions, so it's most useful for comparing similar companies rather than as a standalone verdict.