What is the difference between equity value and enterprise value?
The single most important valuation concept: which investors a value belongs to.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
Equity value is the value of the shares — what belongs to shareholders. Enterprise value is the value of the operating business to everyone who finances it: shareholders, lenders and other claimholders such as minority shareholders. Two identical businesses with different amounts of debt have the same enterprise value but different equity values.
The full answer
Enterprise value = equity value + net debt + preferred shares + minority interest − non-operating assets
An analogy
A house worth €500k with a €300k mortgage: the house is the enterprise value (€500k), the owner's equity is €200k. Changing the mortgage doesn't change the house.
Why the distinction matters
- Multiples must match: EV goes with metrics before interest (revenue, EBITDA, EBIT); equity value with metrics after interest (net income, EPS).
- Capital structure neutrality: EV lets you compare companies with different leverage.
- Deals: a buyer of a whole company takes on its debt, so the price of the business is EV; what shareholders receive is equity value.
Market vs book
Equity value in valuation means market value (share price × diluted shares), not book equity on the balance sheet, which reflects historical cost and accumulated profits.
Mistakes to avoid
Saying EV is "what you pay for a company" without explaining what equity holders receive.
Using book equity instead of market capitalisation.
Follow-ups they may ask
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