IB InterviewTechnical
Enterprise vs. equity value
Bridge between enterprise value and equity value using debt, cash, and non-core items.
Direct answer
Enterprise value reflects core operations; equity value adjusts for net debt and other claims to arrive at value to shareholders.
Step-by-step
Walk through the structured answer
1
Start from operations
Enterprise value prices the operating business using cash flows before financing decisions.
2
Adjust for capital structure
Subtract net debt and preferred equity; add cash and non-operating assets.
3
Account for other claims
Consider minority interests, pensions, and in-the-money options when reconciling to diluted equity value.
4
Check against market caps
Ensure the bridge lines up with current share price and diluted share count for public comps.
Pitfalls to avoid
- Double counting cash or excluding restricted cash where required.
- Forgetting minority interest when using enterprise multiples.
- Mixing book and market values when reconciling to equity value.
Follow-up angles
- How do capital leases affect the bridge?
- When would enterprise value be lower than equity value?
- How do you treat NOLs in this reconciliation?
Related questions
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