Enterprise Value Bridge

Enterprise value represents the value of a company's operations to all providers of capital, including lenders and shareholders. Equity value is what is left for shareholders. The bridge shows the steps between the two.

Starting from equity value, analysts typically add debt, preferred shares and noncontrolling interests, then subtract cash and non-operating assets, to reach enterprise value. Moving the other way, from enterprise value to equity value, these steps are reversed.

For example, a company has an equity value of 800 million, debt of 300 million, a noncontrolling interest of 50 million and cash of 100 million. Its enterprise value is 800 plus 300 plus 50 minus 100, or 1,050 million.

The bridge matters in valuation. A discounted cash flow model usually produces an enterprise value, which must then be bridged to equity value and divided by fully diluted shares to give a value per share. In acquisitions, it explains why the headline price for a business can differ greatly from what the sellers actually receive. Other items, such as pension deficits, leases and certain provisions, may also be included, depending on how the analysis is done.