Equity Value
Definition
Equity value (market capitalization, for a public company) is the value of the business attributable to common shareholders only: share price times fully diluted shares outstanding. Fully diluted shares include the net effect of in-the-money options (via the treasury stock method), RSUs, and convertible securities where dilutive.
Equity value is what remains after all more-senior claims — debt, preferred, minority interest — which is why the EV bridge adds those items (and subtracts cash) to move from equity value to enterprise value.
Because equity value is after interest, it pairs with levered metrics: net income (P/E), book equity (P/B), and levered free cash flow.
Why interviewers ask
Interviewers test the difference from enterprise value relentlessly: "a company issues $100 of debt and holds the cash — what happens to EV and equity value?" (equity value unchanged; EV unchanged, because debt up $100 and cash up $100 offset). The trap is using basic instead of diluted shares, or pairing equity value with unlevered metrics.
Related terms
Interviews don't test definitions — they test recall under pressure.
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