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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.

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