Enterprise Value and Equity Value
IB · EV ↔ equity
Bridge market value, net debt, minority interest, associates, and diluted shares.
EV versus equity value
Two values, two audiences
Equity value is what the company is worth to common shareholders only: diluted shares outstanding × share price for a public company. Enterprise value is the value of the core operating business to all capital providers — equity, debt, preferred stock and minority holders.
We look at both because they answer different questions. Equity value tells you what a share is worth; enterprise value lets you compare businesses regardless of how they are financed and is what an acquirer effectively pays for the operations.
Drawing diagram…
Start from enterprise value, the value of the core operations to all capital providers. Subtract debt, preferred stock and non-controlling interest, which are claims of other investors. Add cash and non-operating assets such as equity investments. The result is equity value for common shareholders; dividing by diluted shares gives the implied share price. Running the steps in reverse takes you from equity value to enterprise value.
Common pitfall
The bridge runs through net debt, not gross debt — and preferred equity and minority interest are claims too. Candidates lose points by stopping at cash and debt.
Learn these first
Study module
- EV and Equity Value45 min