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Capital & valuation
Enterprise value versus equity value
Enterprise value is what the whole business is worth to all capital providers; equity value is what the owners get after net debt is paid off.
Owned by: Manager / DirectorTest band: Manager / Director
The formula
Equity value = Enterprise value − Net debt
In practice
A business sold for 6× EBITDA with $2M of net debt pays the owners 6× EBITDA minus $2M. Owners routinely forget the second part.
The kind of thing the test asks
- A business sells for 6× EBITDA of $2M. It carries $3M of debt and $500k of cash. The owners receive…
- An acquirer offers $10M "for the business" — a debt-free, cash-free deal. The business has $2M of debt and $300k of cash. The sellers net…
More in capital & valuation
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