Enterprise value vs equity value, explained for interviews

The difference between enterprise value and equity value, the bridge between them, which multiples go with which, and the interview questions that test it. 5 min readUpdated 11 November 2026By the Prepper team

Enterprise value and equity value answer two different questions. Equity value is what the shareholders' stake is worth. Enterprise value is what the whole operating business is worth to everyone who finances it: shareholders, lenders and other claimants.

The house analogy

A house worth 500 with a mortgage of 300 has an enterprise value of 500 and an equity value of 200. Pay off part of the mortgage and the house is still worth 500; only the split changes.

The bridge

Enterprise value = equity value + debt + preferred stock + minority interests − cash.

Add debt and preferred stock because their holders have a claim on the business.
Add minority interests because the consolidated accounts include 100% of subsidiaries the company does not fully own.
Subtract cash because it is not part of operations and a buyer effectively gets it back.

Which multiple goes with which

Match the numerator to who the metric belongs to.

Enterprise value pairs with metrics before interest: revenue, EBITDA, EBIT, unlevered free cash flow.
Equity value pairs with metrics after interest: net income, earnings per share, levered free cash flow.

So EV/EBITDA and P/E are consistent; equity value/EBITDA is not.

Questions that test it

A company raises 100 of debt and holds the cash. What happens to enterprise value? Nothing: debt and cash both rise by 100.
It uses the 100 of cash to buy equipment? Cash falls, so enterprise value rises by 100; the business now has more operating assets.
It issues 100 of shares to repay debt? Equity value up 100, debt down 100, enterprise value unchanged.
Can enterprise value be negative? Yes, when cash exceeds market capitalisation plus debt, which happens with distressed or cash-rich small companies.
Why use diluted shares? Because options and convertibles that are in the money will become shares; the treasury stock method estimates how many.

Common mistakes

Forgetting leases and pensions when the peer group includes them.
Using book value of equity instead of market value.
Mixing an enterprise value with an after-interest metric.

Practise the calculations in the technical questions guide.

Frequently asked questions

Is enterprise value or equity value more important?
Neither. Enterprise value compares businesses regardless of financing; equity value is what shareholders actually own. Interviews test whether you can move between them.
Why is cash subtracted in enterprise value?
Cash is a non-operating asset. A buyer of the whole company gets the cash, so the net cost of the operations is lower by that amount.

Is enterprise value or equity value more important?

Neither. Enterprise value compares businesses regardless of financing; equity value is what shareholders actually own. Interviews test whether you can move between them.

Why is cash subtracted in enterprise value?

Cash is a non-operating asset. A buyer of the whole company gets the cash, so the net cost of the operations is lower by that amount.