Financial Glossary
Enterprise Value vs. Equity Value
Enterprise value and equity value are two different measures of what a company is worth. Enterprise value represents the total value of the business's operations to all capital providers, including both debt and equity holders. Equity value, by contrast, is the portion attributable only to shareholders. You move from enterprise value to equity value by subtracting net debt, or from equity value to enterprise value by adding it back.
Problem & Application
The distinction matters enormously in any acquisition or fundraising conversation, because a headline price often refers to enterprise value while the seller cares about the equity value they actually pocket. A business with significant debt will have an equity value well below its enterprise value, and confusing the two can derail a deal or mislead owners on their take-home proceeds. Founders and owners reviewing a term sheet or a buyout offer should always confirm which figure is being quoted.
In Short
Knowing whether a number refers to enterprise value or equity value is essential to understanding any valuation or offer. The bridge between them is simply net debt.