Enterprise Value vs Equity Value: The Valuation Bridge
Enterprise value measures the value of the operating business. Equity value measures the value attributable to common shareholders after financing adjustments.
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Use enterprise value for operating valuation multiples and DCF firm value. Use equity value when you need the value of common equity or implied share price.
Enterprise value is the right basis for EV/EBITDA, EV/Revenue, and unlevered DCF valuation.
Equity value is the right output when translating a company valuation into shareholder proceeds.
Do not apply equity multiples to enterprise value metrics or forget net debt when moving from EV to equity value.
From enterprise value to shareholder value
If a company has $500 million of enterprise value, $90 million of debt, and $20 million of cash, implied equity value is $430 million. The operating business is worth $500 million, but shareholders receive value after debt holders are accounted for.
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Common Mistakes
Frequently Asked Questions
Is enterprise value higher than equity value?
Often, but not always. A net cash company can have equity value above enterprise value.
Which value does DCF produce?
An unlevered DCF usually produces enterprise value, then net debt is subtracted to estimate equity value.
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