Enterprise value is the sum of a firm's market capitalisation and its net debt (short- and long-term debt minus cash). It measures the value of a firm as represented by the contribution made by external banks and shareholders.
By comparing it to the sales figure (usually for the most recent 12-month period) you get a valuation ratio. So if a firm's market capitalisation is £100m and its net debt is £150m, EV is £250m. If the sales figure is £25m, the EV/sales ratio is expressed as ten. The higher the multiple, the more highly rated the company.
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