What’s The Difference Between Enterprise Value And Clean Enterprise Value?

Burgess COMMENTARY

Peter Burgess

What’s The Difference Between Enterprise Value And Clean Enterprise Value?

What’s the difference between enterprise value, equity value and clean enterprise value? All of these multiples are used in the process of security analysis but as UBS’s fundamental equity analysts Geoff Robinson and Guy Weynes discuss in their research booklet, “How to…analyze and talk the language of multiples” these three metrics all require varying degrees of scrutiny before use.



Enterprise value or EV is the cost of buying the right to the whole of an enterprise’s core cash flow. It is equal to the estimated value of the operations of an enterprise as represented by the value of the various claims on cash flow and profit. A basic enterprise value can be defined as equity value plus net debt plus the value of minority businesses and other provisions deemed as debt, such as pension provisions.

What’s The Difference Between Enterprise Value And Clean Enterprise Value?

There are three main types of EV, total enterprise value, operating enterprise value and core enterprise value all of which reflect a different side of the business and can be used in different value calculations. UBS’s analysts point out that often it’s difficult to tell which EV multiple analysts are working with however it is “imperative that you are aware of the constituents of each type of EV. In many cases, the type of EV is driven by the metrics used in the denominator of the multiples. Failure to understand “your EV flavour” can lead to valuation errors.”



Total enterprise value is the broadest sum of business value. Total EV includes all the activities of the business, investments and associates as well as non-core assets. Removing the value of non-operating assets such as investments and associates gives you the operating EV and going one step further, removing non-core assets (operating assets that do not form part of the business’s core activity base) gives the core EV. The exclusion of non-core assets makes the calculation of EV more subjective (in most cases there is no market-determined value for the non-core assets) but it does result in more meaningful and comparable valuation multiples.Enterprise value

EV (in whatever form) calculates the value of an entire enterprise whereas equity value expresses the value of shareholders’ claims on the assets and cash flow of the business. Equity value is simply enterprise value less net debt, less noncontrolling interests plus investments. The difference between these two metrics is that enterprise multiples represent the whole business and can be used with other statistics relative to the entire enterprise, such as sales or EBITDA. Equity multiples, on the other hand, should, according to UBS, “only ever be compared to a statistic that only applies to shareholders only” such as earnings after the deduction of payments to creditors. enterprise value