Equity Value

Equity value is the value attributable to a company's shareholders — the amount the shareholders actually receive in a transaction after all interest-bearing debt and debt-like obligations have been settled. It is distinct from enterprise value, which represents the total value of the operating business regardless of how it is financed.

The relationship is: Equity Value = Enterprise Value − Net Debt, where net debt equals total interest-bearing debt minus cash and cash equivalents. In a share sale, the purchase price paid to shareholders approximates the equity value (subject to working capital and other adjustments at closing). In an asset sale, proceeds are received by the corporation first; shareholders receive the residual after corporate taxes and liabilities are settled, which may differ materially from the stated enterprise value.

For a business with no debt and significant cash on its balance sheet, equity value will exceed enterprise value — the cash adds to what shareholders receive. For a business carrying significant debt, equity value may be considerably less than enterprise value. Advisors and buyers may quote either figure depending on context, so it is important to clarify which metric any given offer or valuation refers to before drawing conclusions about the sale price.

See also: Enterprise Value, Share Sale, Asset Sale, Working Capital.