Market Cap tells you what the equity is worth.
Enterprise Value tells you the price tag to take over the whole company.
Imagine you want to buy a house. The seller asks for $500,000. This is the "Equity Value" or Market Cap.
However, the house comes with a $200,000 mortgage attached to it. As the new owner, you must assume this debt.
But, inside the house, you find a safe containing $50,000 in cash. You can use this cash immediately to pay down part of the debt.
Buyers don't just buy shares; they must refinance the debt. EV represents the true "Takeover Price" required to acquire 100% of the business.
Market Cap ignores capital structure. EV neutralizes the difference between companies that use a lot of debt vs. those that use only equity.
A stock might look cheap (low P/E ratio), but if it has massive debt, the Enterprise Value will be huge, revealing the true risk.
*Note: Enterprise Value is theoretically independent of capital structure changes (Miller-Modigliani theorem), but in practice, debt adds risk and cost.
Edwyn