Equity Value vs Enterprise Value

Think of buying a house worth $1M (enterprise value) with a $700K mortgage and $50K cash in a drawer. Your equity stake is $1M − $700K + $50K = $350K (equity value). Enterprise value is the value of the operating business itself, independent of financing. Equity value is the residual claim of owners after all other claimholders. For a public company, equity value = share price × fully diluted shares outstanding (market capitalization).

Enterprise Value = Equity Value + Total Debt + Preferred Stock + Minority (Noncontrolling) Interest − Cash & Cash Equivalents. You ADD debt because an acquirer must assume or repay it. You ADD preferred and minority interest because they're other claims on the business. You SUBTRACT cash because the acquirer effectively gets it back / can use it to pay down the purchase. The combined 'debt − cash' term is net debt. To go the other direction, just solve for equity value.

The single biggest practical reason this question gets asked: multiples must be consistent. An EV-based metric (the numerator) must pair with a denominator available to ALL investors — so EV/EBITDA, EV/EBIT, and EV/Revenue are valid because EBITDA/EBIT/Revenue are pre-interest. An equity-based metric must pair with an equity-available denominator — so P/E uses net income (which is AFTER interest). You can NEVER do EV/Net Income or P/EBITDA; the capital-provider audience must match. This consistency rule is the heart of the question.

If a company raises $100M of debt and holds it as cash, its enterprise value is unchanged (+$100M debt, −$100M cash net to zero) but its equity value... is also roughly unchanged here. The deeper point: two identical businesses with different debt levels have the SAME enterprise value but DIFFERENT equity values. That's why EV is the cleaner basis for comparing companies in comps analysis — it strips out financing decisions.