Equity value

The value of the owners' share alone - enterprise value less net debt. What a buyer of the shares is actually paying for.

Example

Harbour Press's enterprise value of 20,500,000 less 4,000,000 of net debt gives an equity value of 16,500,000.

Important

Always write the enterprise value and the equity value as two separate labelled lines. This single habit prevents the most expensive error in relative valuation and takes one line to perform.

Related terms

• Enterprise value — The value of the whole business - what lenders and owners together have claims on. Equity value plus net debt.
• Net debt — Borrowings minus cash. The measure of indebtedness that accounts for the money already sitting in the bank to repay it.
• Price-to-earnings ratio — The price of a share divided by the earnings attributable to it. An equity multiple, because both parts are measured after interest has been paid.

Lessons that explain it

• Comparables and multiples: what the market is already paying — A multiple is not a shortcut past valuation. It is somebody else's valuation, compressed into one number, and using it means inheriting every assumption inside it. (12 min)
• What each method is for, and what to do when they disagree — Three methods on one asset produce three different answers, and the disagreement is the most useful output. Averaging it away destroys the only thing the exercise produced. (10 min)

All 578 terms in the Investing glossary