What each line does
Enterprise value measures the operating business, no matter how it is financed. Lenders and preferred holders are paid before common shareholders, so their claims come off. Minority interest is the share of a consolidated subsidiary that someone else owns. Cash is added because it belongs to the owners and could repay debt, so enterprise value counts only the business excluding that cash.
Equity value = EV - debt - preferred stock - minority interest + cash. In reverse: EV = equity value + debt + preferred stock + minority interest - cash. Net debt = debt - cash. Value per share = equity value / shares outstanding.
A worked example
A company has an enterprise value of $1,850 million. It owes $620 million of debt, has $40 million of preferred stock, $25 million of minority interest and $210 million of cash. There are 55 million shares.
| Line | Amount |
|---|---|
| Enterprise value | $1,850.00 |
| Less: debt | -$620.00 |
| Less: preferred stock | -$40.00 |
| Less: minority interest | -$25.00 |
| Plus: cash | $210.00 |
| Equity value | $1,375.00 |
Net debt is $410 million, and the claims ahead of common equity total $685 million before cash. Equity value of $1,375 million over 55 million shares is $25.00 a share. Switch the direction to start from the $1,375 million market cap and the calculator returns the $1,850 million enterprise value.
When to use which number
A DCF gives an enterprise value, because it discounts cash that belongs to every investor. To compare with a share price you must cross the bridge to equity value. Multiples work the other way: EV/EBITDA starts from enterprise value, while a P/E ratio starts from equity value. Mixing them, such as dividing market cap by EBITDA, is a common source of wrong answers.
If equity value comes out negative, the claims ahead of shareholders exceed the business's value at that enterprise value. The calculator shows the negative number and a warning instead of hiding it. In practice, shares in such a company can still trade because buyers price in a chance that the business is worth more.
Mistakes that cost points
- Adding debt when moving from enterprise value to equity value. Debt comes off on the way down and goes on the way back up.
- Forgetting cash, or counting it twice by also lowering debt.
- Leaving out preferred stock and minority interest because the problem lists them last.
- Using book values for debt when market values are available. Large gaps matter for distressed companies.
- Dividing equity value by the wrong share count. Use diluted shares when options and convertibles are in the money.
Estimate for learning, not financial advice. Inputs stay in your browser and are not sent or stored.