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Enterprise value calculates a business’s current value similar to how a balance sheet does, while equity value offers a snapshot of that business’s current and potential future value.

Enterprise value is the sum of a company’s market capitalization and its debts, minus the cash and cash equivalents it holds. It accounts for a company’s current stocks, debt and cash. Debts can be interest due to shareholders, preferred shares or other things the company owes.

Equity value uses the same calculation as enterprise value, but it adds in stock options, convertible securities, and other potential assets and liabilities. Because it considers factors that may not currently impact a company, but can at any time, equity value reveals a company’s potential future value and its growth potential. Equity value may fluctuate daily with the stock market.

In short, enterprise value provides investors with a fast and easy way to estimate a company’s value, while equity value helps company owners and shareholders shape future decisions.

For more information, see What is the difference between enterprise value and equity value?

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