1. Enterprise Value vs Equity Value
So we wanna make sure we understand the difference between enterprise value
and equity value. So enterprise value is essentially the value of the entire
business, whereas equity value is the value shareholders would receive if
the company is sold. And you can see in our diagram there,
the difference between enterprise value and equity value is the market value
of the companies net debt. So how could we go about calculating the
market value of equity or the market capitalization? Well, we would simply
take the share price and multiply that by the number of shares outstanding.
And once we've completed that calculation of equity value, we could use
that to get enterprise value, and the way that we would do that
is we would take equity value, we would add net debt,
and that would then give us the enterprise value or the net present
value of the entire business.
2. Let's practice!