Enterprise Value & Equity Value - Basic

Question 1

Why do we look at both Enterprise Value and Equity Value?

Answer 1

Enterprise Value represents the value of the company that is attributable to all investors; Equity Value only represents the portion available to shareholders (equity investors). You look at both because Equity Value is the number the public-at-large sees, while Enterprise Value represents its true value.

Question 2

When looking at an acquisition of a company, do you pay more attention to Enterprise or Equity Value?

Answer 2

Enterprise Value, because that’s how much an acquirer really “pays” and includes the often mandatory debt repayment.

Question 3

What’s the formula for Enterprise Value?

Answer 3

EV = Equity Value + Debt + Preferred Stock + Minority Interest - Cash

(This formula does not tell the whole story and can get more complex – see the Advanced Questions. Most of the time you can get away with stating this formula in an interview, though).