Equity Value (Market Cap)

Equity value measures the value available to equity holders only, while enterprise value measures the total value of the business to all capital providers (equity, debt, preferred). You move from equity value to enterprise value by adding net debt, minority interest, and preferred stock, then subtracting cash. Equity value is used with equity-level metrics (EPS, Net Income) while enterprise value pairs with pre-debt metrics (EBITDA, Revenue, EBIT).

Always use diluted shares outstanding when calculating equity value. Diluted shares include basic shares plus the impact of in-the-money stock options, RSUs, warrants, and convertible securities calculated via the treasury stock method. Using basic shares understates the true equity value because it ignores potential dilution from these instruments.

Use equity value multiples (P/E, Price/Book) when comparing companies with similar capital structures or when analyzing financial institutions like banks and insurance companies. For most other analyses, enterprise value multiples are preferred because they neutralize differences in capital structure. Equity value is also the starting point for the equity value to enterprise value bridge, one of the most common interview walks.