Business Valuation
Enterprise and equity value
Do two businesses with the same share value cost the same to acquire?
Practise enterprise and equity value with a worked example and a short check.
Enterprise value approximates the value of operating assets. Equity value belongs to shareholders.
Enterprise value = equity value + debt − excess cash
Begin with what shareholders receive. Add debt and subtract cash available above operating needs. $60m + $18m − $8m = $70m.
At $60m equity, $18m debt and $8m cash, EV is $70m.
Begin with what shareholders receive. Add debt and subtract cash available above operating needs. $60m + $18m − $8m = $70m.
A target has $60m equity, $18m debt and $25m excess cash. What is its simplified EV?