What is the difference between Enterprise Value and Equity Value?
Answer
Equity Value (market cap) is the value attributable to shareholders alone. Enterprise Value is the total value of the business to all capital providers — both debt and equity holders. EV = Equity Value + Debt + Preferred Stock + Minority Interest − Cash. Think of it as what it would cost to buy the entire company outright.
Why interviewers ask this
This distinction is foundational. EV is capital-structure neutral, so EV multiples (EV/EBITDA, EV/Revenue) are the right choice when comparing companies with different leverage. Equity multiples like P/E are useful when you specifically want the capital structure effect baked in. One important point: you subtract cash because an acquirer captures the target's cash at close, which effectively reduces the net purchase price.