Loading the player...
A:

 

Enterprise value and equity value are two common ways that a business may be evaluated from a sales standpoint. Both may be used in the valuation or sale of a business, but each offers a slightly different view. While enterprise value gives an accurate calculation of the overall current value of a business, similar to a balance sheet, the equity value offers a snapshot of both current and potential future value.

Businesses calculate enterprise value by adding up the market capitalization, or market cap, plus all of the debts in the company. Debts may include interest due to shareholders, preferred shares and other such things that the company owes. Subtract any cash or cash equivalents that the business currently holds, and you get the enterprise value. Think of this like a business' balance sheet, accounting for all of its current stocks, debt, and cash.

Equity value uses the same calculation as enterprise value, but adds in the value of stock options, convertible securities, and other potential assets or liabilities for the company. Because it considers factors that may not currently impact the company, but can at any time, equity value offers an indication of potential future value and growth potential. The equity value may fluctuate on any given day due to the normal rise and fall of the stock market.

In most cases, a stock market investor or someone who is interested in buying a controlling interest in a company will rely on enterprise value for a fast and easy way to estimate the value. Equity value, on the other hand, is commonly used by owners and current shareholders to help shape future decisions.

RELATED FAQS
  1. Enterprise value versus market capitalization

    Learn the difference between market capitalization and enterprise value, and understand how these two common valuation tools ... Read Answer >>
  2. Intrinsic Value vs Current Market Value

    Discover the differences between intrinsic and market values, what makes the former difficult to determine, and how investor ... Read Answer >>
  3. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
Related Articles
  1. Investing

    Cheap Stocks or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  2. Investing

    Market value versus book value

    Understanding book value and market value is helpful in determining a stock's valuation and how the market views a company's growth prospects in the future.
  3. Investing

    Understanding Verizon's Capital Structure (VZ)

    Verizon has a highly leveraged capital structure, and this debt capitalization and the company's equity have affected its enterprise value.
  4. Investing

    Lowe's Stock: Capital Structure Analysis (LOW)

    Examine Lowe's Companies' equity capitalization, debt capitalization and enterprise value to analyze trends in the retailer's capital structure.
  5. Investing

    Using Enterprise Value To Compare Companies

    Learn how enterprise value can help investors compare companies with different capital structures.
  6. Investing

    Amazon Stock: Capital Structure Analysis (AMZN)

    Analyze Amazon's capital structure to determine what roles equity and debt play in financing operations. How has Amazon's financial leverage changed over time?
  7. Investing

    UPS Stock: Capital Structure Analysis

    Analyze UPS' capital structure to determine the relative importance of debt and equity financing. Identify the factors influencing financial leverage trends.
  8. Investing

    Google Stock: Capital Structure Analysis (GOOGL)

    Analyze Alphabet's capital structure to determine how it has changed over time and how it compares to similar companies.
RELATED TERMS
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, ...
  2. Value

    Value is the monetary, material or assessed worth of an asset, ...
  3. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a measure used to ...
  4. Asset Valuation

    Asset valuation is the process of determining the fair market ...
  5. Market Value

    Market value is the price an asset would get in the marketplace. ...
  6. Business Valuation

    Business valuation is the process of determining the economic ...
Trading Center