If you’ve ever been confused by the difference between enterprise value and equity value, you’re not alone. These two terms show up constantly in valuation models, deal announcements, investor presentations—and yet they’re often misunderstood or used interchangeably when they shouldn’t be.
At a glance, the difference seems simple:
Equity value is what shareholders own.
Enterprise value is what the business is worth as a whole.
But once you get into the details—especially when dealing with debt, cash, and valuation multiples—it gets more technical.
In this article, we’ll break down exactly what each one means, how they’re calculated, when to use them, and how they connect to DCFs, comps, and transaction analysis.
What Is Equity Value?
Equity value—also called market capitalization—is the total value of a company’s shares. It reflects what the equity investors (the shareholders) are entitled to.
The basic formula is:
Equity Value = Share Price × Number of Shares Outstanding
If a company has 100 million shares trading at $10, its equity value is:
$10 × 100M = $1 billion
This value belongs to the shareholders. It’s what they’d receive after all debts are paid—but only in theory. In practice, it’s just the market’s current pricing of ownership in the company.
Equity value is also the basis for P/E ratios and equity-based metrics like earnings per share (EPS).
What Is Enterprise Value?
Enterprise value (EV) represents the total value of the company’s core operations, available to all capital providers—both debt and equity.
Think of it as:
What would it cost to buy the entire business, debt and all?
Here’s the standard formula:
Enterprise Value = Equity Value + Net Debt
Net Debt = Total Debt – Cash and Cash Equivalents
Sometimes, you’ll also adjust for:
- Preferred stock
- Minority interests
- Unfunded pensions or leases (debt-like items)
These are added to EV because they represent claims on the company’s value beyond just common shareholders.
Why the Distinction Matters
Enterprise value and equity value are used in different contexts, and it’s crucial not to mix them up.
Use Equity Value when:
- You're comparing to net income (e.g. P/E ratio)
- You're valuing just the shareholders’ stake
- You're modeling a stock-for-stock transaction
Use Enterprise Value when:
- You're comparing to EBITDA, EBIT, or revenue
- You're doing a DCF based on free cash flow to the firm (FCFF)
- You're assessing the value of the entire operating business
Mistake to avoid:
Don’t apply an EV/EBITDA multiple to net income. Don’t apply a P/E multiple to EBITDA. You must match the numerator and denominator—EV to firm-level metrics, equity value to equity-level metrics.
Real-World Example
Let’s say a company has:
- Equity value: $1.2 billion
- Debt: $500 million
- Cash: $200 million
Then:
Enterprise Value = $1.2B + ($500M – $200M) = $1.5 billion
If EBITDA is $150 million, the EV/EBITDA is:
$1.5B ÷ $150M = 10×
If net income is $80 million, the P/E is:
$1.2B ÷ $80M = 15×
Both are valid—but they tell different stories and are used in different places in the valuation toolkit.
Closing Thoughts
The difference between enterprise value and equity value isn’t just accounting—it's fundamental to valuation logic. One tells you what the whole business is worth. The other tells you what shareholders own. Both are useful, but only when used correctly and consistently.
When you're building models, pitching deals, or analyzing comps, remember:
Enterprise value reflects the value of the business. Equity value reflects the value of ownership.
Getting this distinction right is a foundational skill in finance—and one that separates clear thinking from careless modeling.