Valuation

Enterprise value vs. equity value

4 min read · updated June 29, 2026

Two numbers, and people mix them up constantly: enterprise value is what the operating business is worth; equity value is what the shareholders own. They are not the same, and the bridge between them is the most-tested relationship in the entire interview. Get it backwards and you've inverted the one thing every valuation method ultimately spits out.

Reason from the buyer's seat. If you bought the whole company tomorrow, what would you actually be on the hook for?

Enterprise value (EV) is the value of the core operating business — what it costs to acquire the operations, regardless of how they're financed. It's the number that's capital-structure neutral.
Equity value (market cap, if it's public) is the slice that belongs to shareholders after the lenders are paid.

The bridge

Enterprise value is the whole business; add cash and subtract debt to get the equity value the shareholders keep.

The relationship is one equation, and you should be able to run it in either direction:

$\text{Equity Value} = \text{Enterprise Value} - \text{Net Debt}$

where net debt is simply debt minus cash. Flip it around and you get the definition interviewers love to start from:

$\text{Enterprise Value} = \text{Equity Value} + \text{Debt} - \text{Cash}$

So going from enterprise value to equity value, you add cash and subtract debt.

Common mistake

The number-one bridge error: people add cash when they should subtract it going up to enterprise value — or, going the other way, they subtract cash when bridging down to equity. Anchor it with the logic, not the sign: a buyer who acquires the business inherits its cash, and that cash is used to pay down what they effectively owe. So cash is SUBTRACTED to get enterprise value, and added back to get equity value. Debt does the opposite. Get this one reflex right and half of valuation falls out.

Why cash works that way

Think about buying a house with $20 of furniture already inside that you get to keep. The sticker price is$ 100, but if you immediately pocket $20, the *real* economic cost of the operating asset is$ 80. Cash on a company's balance sheet is that furniture — a non-operating asset the new owner just takes. So it reduces the effective price of the business, which is exactly why it comes out of enterprise value.

Debt is the reverse: the buyer has to assume or repay it, so it's part of the true cost of control.

Key insight

Enterprise value is financing-agnostic — it's why you use it to compare companies with different capital structures. Two identical businesses, one funded with debt and one with equity, have the same enterprise value but very different equity values. That's the whole reason the bridge exists.

A worked example

Say a company has an equity value of $800**, **debt of$ 300, and cash of $100**. Net debt is$ 300 − $100 = **$ 200, so enterprise value is $800 +$ 200 = $1,000.

Now reverse it — this is how a DCF hands you the answer. You compute an enterprise value of $1,000**, the company carries **$ 300 of debt and ** $100** of cash, so equity value is$ 1,000 − $300 +$ 100 = $800. Divide by diluted shares and you've got value per share.

What goes in net debt

Net debt is mostly short- and long-term debt minus cash, but the full bridge also picks up other claims that sit ahead of common equity: preferred stock, noncontrolling (minority) interest, and sometimes unfunded pension or capital-lease obligations all get added to equity value to reach enterprise value, because they're capital provided by someone other than common shareholders.

Interview tip

When they say "walk me from enterprise to equity value," don't just recite the formula — say why each item moves the way it does ("subtract debt because the buyer assumes it; add cash because they pocket it"). That one extra sentence of reasoning is the depth that separates a memorizer from someone who understands the plumbing, and it's exactly what a Superday is filtering for.

Make it stick

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