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Enterprise Value vs Equity Value




Enterprise value is a widely used metric to evaluate a company's total value. It includes both the company's current assets and debts.

EV = MC + Total Debt − C

where: MC = Market capitalization - equal to the current stock price multiplied by the number of outstanding stock shares.

Total debt = the sum of short-term and long-term debt.

C = Cash and cash equivalents - a company's liquid assets that may not include marketable securities.

Equity value represents the value of the company's shares and loans that the shareholders have made available to the business. The calculation for equity value adds enterprise value to redundant assets (non-operating assets) and then subtracts the debt net of cash open. Total equity value can be further broken down into the value of shareholders' loans and outstanding shares (both common and preferred).

Equity value and enterprise value are often used to value a business. While both provide an accurate calculation of the current value of a company, they offer a slightly different view of the future. In most cases, a stock market investor or someone interested in buying a controlling interest in a company will rely on the enterprise value for a fast and easy way to estimate the value. On the other hand, equity value is commonly used by the owners and current shareholders to help shape future decisions.

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