Valuation: Asset/Enterprise and Equity Values

Enterprise value

The enterprise value (which can also be called firm value, or asset value) is the total value of the assets of the business (excluding cash).

When you value a business using unlevered free cash flow in a DCF model you are calculating the firm’s enterprise value.

If you already know the firm’s equity value as well their total debt and cash balances, you can use them to calculate enterprise value.

Asset/Enterprise value formula

If equity, debt, and cash are known then you can calculate enterprise value as follows:

EV = (share price x # of shares) + total debt – cash

Where EV equals Enterprise Value. Note: If a business has minority interest, that must be added to the EV as well.

Multiple Bases

Asset/Enterprise value can also be calculated using multiples which don't subtract interest payments:

Multiple Bases - Sales - Operting Income - EBITDA - EBIT - Unlevered Cash Flow - Assets

EV = EV Multiple Base x Valuation Multiple

Equity value

The equity value (or net asset value) is the value that remains for the shareholders after any debts have been paid off. When you value a company using levered free cash flow in a DCF model you are determining the company’s equity value. If you know the enterprise value and have the total amount of debt and cash at the firm you can calculate the equity value as shown below.

Equity value formula

If enterprise value, debt, and cash are all known then you can calculate equity value as follows:

Equity value = Enterprise Value – total debt + cash

Or

Equity value = # of shares x share price

Multiple Bases

Equity value can also be calculated using multiples which subtract interest payments:

Multiple Bases - Net Income - Levered Cash Flows - Equity Book Value

Equity Value = Equity Multiple Base x Valuation Multiple