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Valuation

Enterprise value vs. equity value

By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching

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, meaning 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:

Equity Value=Enterprise Value−Net Debt\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:

Enterprise Value=Equity Value+Debt−Cash\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.

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Frequently asked

What is the difference between enterprise value and equity value?
Enterprise value is what the operating business is worth; equity value is what the shareholders own. Enterprise value is capital-structure neutral, meaning the cost to acquire the operations regardless of financing. Equity value is the slice left for shareholders after the lenders are paid. The bridge between them is the most-tested relationship in valuation.
Why do you subtract cash to get enterprise value instead of adding it?
Cash is a non-operating asset the buyer inherits and can use to pay down what they owe, so it reduces the effective price of the business. Think of buying a house with furniture already inside that you keep: the sticker price is $100, but pocketing $20 makes the real cost $80. Cash comes out; debt gets added.
How do you walk from enterprise value to equity value?
Add cash and subtract debt. The equation is equity value equals enterprise value minus net debt, where net debt is debt minus cash. So if enterprise value is $1,000 with $300 of debt and $100 of cash, equity value is $800. The full bridge also subtracts preferred stock and noncontrolling interest.
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