Equity Value

For a listed company, equity value is often measured by market capitalization: the share price multiplied by the number of shares outstanding. In valuation work, it can also be calculated by starting with enterprise value and subtracting net debt, which is debt minus cash.

For example, if a company's enterprise value is 2,300 million and it has debt of 500 million and cash of 200 million, its equity value is 2,000 million.

The difference between enterprise value and equity value matters in practice. When a company is bought, the headline price may refer to either. A buyer paying an enterprise value of 1 billion for a company with 300 million of net debt is paying shareholders only 700 million, because the rest goes towards taking on or repaying the debt.

Equity value is the figure most relevant to shareholders. It is the basis for valuation multiples that relate to shareholders, such as the price-to-earnings ratio and price-to-book ratio, while enterprise value is matched with measures that relate to the whole business, such as EBITDA.