Enterprise Value vs Equity Value: Who Owns the Cash Flows?
Enterprise value represents the operating business before allocating value among capital providers. Equity value belongs to shareholders.
Enterprise value
Represents the value of the operating business attributable broadly to debt and equity capital providers.
Equity value
Represents value attributable specifically to common equity holders.
Bridge
A simplified bridge starts with enterprise value, subtracts debt and debt-like claims, and adds applicable nonoperating cash or assets to reach equity value.
DCF connection
Unlevered free cash flow is commonly associated with enterprise valuation, while equity cash flow is associated with equity valuation.
The takeaway
Enterprise value belongs to capital providers broadly. Equity value belongs to shareholders.
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FAQ
Is market capitalization equity value?
It is a common market measure of equity value.
Does enterprise value normally reflect debt claims?
Yes.
Does cash affect the bridge?
Often yes.