Answers / M&A Advisory

What is the difference between Enterprise Value and Equity Value?

A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

Equity value is what belongs to shareholders — the market cap for a listed company. Enterprise value is the value of the whole operating business, attributable to all capital providers (equity and debt), independent of how it's financed. You bridge from one to the other: EV = equity value + net debt + minority interests + preferred + unfunded pensions − associates/non-operating assets (net debt = debt − cash). The reason the distinction matters is multiple consistency: EV-based metrics (EV/EBITDA, EV/EBIT, EV/Sales) pair an all-capital numerator with a pre-financing earnings measure, so they're capital-structure-neutral and comparable across differently-levered firms; equity metrics (P/E) use after-interest earnings, so they're leverage-dependent. The classic error is pairing EV with a post-interest figure (net income) or equity value with a pre-interest figure (EBITDA) — numerator and denominator must both be either all-capital or equity-only.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Equity value = shareholders; EV = whole business, all capital providers
  • ✓Bridge: EV = equity + net debt + minorities + prefs + pension − associates
  • ✓EV metrics are capital-neutral (EBITDA/EBIT/Sales); P/E is leverage-dependent
  • ✓Never mix all-capital numerator with equity-only denominator

COMMON MISTAKES

  • ✗EV/net income or P/EBITDA mismatch
  • ✗Forgetting minorities/pensions in the bridge
  • ✗Using gross debt not net debt

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