What's the difference between enterprise value and equity value?
Model answer
Equity value (market cap) is the value attributable to shareholders. Enterprise value is the value of the core operating business to all capital providers - debt and equity. Bridge: EV = equity value + total debt + preferred + minority interest - cash & equivalents.
⚠ Common wrong answer: "Enterprise value is just market cap plus debt." Why it fails: It forgets to SUBTRACT cash (and to add preferred and minority interest). Cash is a non-operating asset the buyer effectively gets back — skip it and you overstate EV, and for cash-rich companies you even get the EV vs. equity value ordering wrong.
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More from Enterprise & Equity Value
- Why do you subtract cash when going from equity value to enterprise value?
- Why is enterprise value capital-structure neutral but equity value is not?
- A company issues $100 of new debt and holds the cash on its balance sheet. What happens to EV and equity value?
- Which valuation multiples pair with enterprise value vs. equity value, and why?
- How do you calculate fully diluted shares?
- In one sentence each, define enterprise value and equity value.
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