Walk me from equity value to enterprise value.
That you know the bridge items and, more importantly, why each one is there.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
Start with diluted equity value. Add debt and other debt-like claims — preferred shares, minority interest, and depending on the sector, leases and pension deficits. Subtract cash and non-operating assets such as investments in associates. Every item is there so that EV matches the operating earnings you'll divide it by.
The full answer
| Bridge item | Sign | Why |
|---|---|---|
| Diluted equity value | Start | Share price × diluted shares |
| Debt (bonds, loans, drawn facilities) | + | A claim ranking ahead of equity |
| Preferred shares | + | Fixed claim, ahead of common shares |
| Minority (non-controlling) interest | + | Consolidated EBITDA includes 100% of subsidiaries you don't fully own |
| Pension deficit, lease liabilities (if treated as debt) | + | Debt-like obligations — be consistent with EBITDA |
| Cash and equivalents | − | Not part of the operating business |
| Investments in associates and JVs | − | Their profit is below EBITDA, but their value is in the share price |
| Enterprise value | = |
Worked example (€m)
Market cap 4,000; debt 1,500; cash 300; minority interest 200; associates 150. EV = 4,000 + 1,500 − 300 + 200 − 150 = 5,250.
Consistency rule
Whatever you add to EV, the earnings measure must include. If leases are in EV, use EBITDA before rent (or IFRS 16 EBITDA). If pension deficits are in EV, add pension interest back to EBITDA.
Mistakes to avoid
Listing items without the reason for each — the "why" is what's being tested.
Adding minority interest but forgetting associates (or the reverse).
Follow-ups they may ask
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