Can you explain the difference between Enterprise Value and Equity Value?

Equity Value is the value of a company available to its shareholders. It’s calculated by multiplying the share price by the total number of shares outstanding. Think of it as the company’s “sticker price” in the stock market—it shows what the ownership is worth after all debts and obligations are accounted for.

Enterprise Value, on the other hand, represents the total value of the company’s operations. It reflects the price someone would pay to buy the entire business, not just the equity. The formula is: Equity Value + Total Debt + Preferred Stock + Noncontrolling Interests - Cash.

Preferred stock is included because those shareholders have a higher claim on assets than common shareholders. Noncontrolling interests are added because they reflect the value of the portion of subsidiaries that the company doesn’t fully own.

The key difference is that Equity Value focuses on shareholders, while Enterprise Value considers everyone with a claim on the company—shareholders, debt holders, preferred shareholders, and more.

While Equity Value is used for metrics like Price-to-Earnings (P/E), Enterprise Value is more useful for ratios like EV/EBITDA or EV/Revenue, which evaluate the company as a whole.

Understanding these two metrics is critical for valuation and M&A because they reveal different perspectives on a company’s worth and financing.

Talk soon,

Sam