The basic difference
Enterprise value generally reflects the value of the operating business available to providers of capital. Equity value reflects the value attributable to shareholders after considering cash, borrowings and other relevant adjustments.
A simplified bridge
Equity value = enterprise value + surplus cash and non-operating assets − debt and debt-like items, subject to the definitions agreed for the assignment.
Items in the bridge
The bridge is rarely just “add cash and deduct bank loans.” It may include shareholder loans, lease liabilities, unpaid tax, deferred consideration, provisions, preference shares, trapped cash, non-core investments and other items. Whether an item is treated as debt-like depends on the purpose and agreed definitions.
Working capital and transaction adjustments
In M&A, the price mechanism may assume a normal level of working capital. A completion-accounts or locked-box adjustment can therefore change the amount payable even when enterprise value is agreed. This is a transaction mechanism, not necessarily a change in the underlying business valuation.
From equity value to a per-share amount
Per-share value requires the correct share count and rights analysis. Options, warrants, convertibles, preference shares, vesting conditions and different classes can affect dilution and value allocation. Dividing total equity value by the current ordinary shares may be misleading.
Questions to ask
- Does the stated figure represent enterprise value or equity value?
- Which cash and debt balances are included?
- What counts as debt-like or non-operating?
- Is the price subject to working-capital or completion adjustments?
- How are preference shares, options and convertibles treated?
- Is the conclusion for the whole company or a specific shareholding?
How a report should present the bridge
A useful report defines each value measure, identifies the balance-sheet date, lists material adjustments and reconciles the conclusion clearly. Readers should not need to infer whether a number is pre-debt, post-debt or diluted.