Enterprise value vs equity value
The distinction that half of technical questions rest on.
- EV = equity value + net debt (plus preferred and minority interest).
- EV pairs with pre-interest metrics; equity value pairs with post-interest metrics.
- Cash is subtracted because the acquirer effectively gets it back.
Two different buyers
Equity value is the price of the shares: share price × diluted shares outstanding. It belongs to shareholders only.
Enterprise value is the value of the operating business, available to every capital provider. EV = equity value + debt + preferred + minority interest − cash.
Why cash is subtracted
If you buy the whole company, you get its cash back and can use it to pay down the purchase price. So the operating business costs you less than the headline equity check.
Debt is added because you inherit the obligation to repay it.
Matching metrics
Pair enterprise value with pre-interest metrics: EBITDA, EBIT, revenue, unlevered free cash flow.
Pair equity value with post-interest metrics: net income, earnings per share, levered free cash flow.
Mismatching them — EV/net income, for example — is the most common self-inflicted error in an interview.
Apply the lesson to explain the distinction that half of technical questions rest on. Start with the answer, show the bridge, and sanity-check the direction before stopping.
- 1Lead with the definition or conclusion for enterprise value vs equity value.
- 2Show the mechanics in a fixed sequence and state every assumption.
- 3Finish with the practical implication, risk, or reason the result matters.
Equity value is $800M, debt is $300M, cash is $50M. What is enterprise value?
Which multiple is internally consistent?
- EV = equity value + net debt (plus preferred and minority interest).
- EV pairs with pre-interest metrics; equity value pairs with post-interest metrics.
- Cash is subtracted because the acquirer effectively gets it back.