EV-to-Equity Bridge (Intro)

Step 1: Enterprise Value

Enterprise Value = EBITDA × EV/EBITDA Multiple

Enterprise Value = $100.0m × 8.0x = $800.0m

Enterprise Value represents the value of the company's core operations, independent of how it's financed — it's the value that belongs to all capital providers combined, debt and equity holders alike. That's why it's the figure used when comparing companies with different leverage levels, such as in trading comps or M&A analysis.

Step 2: Net Debt

Net Debt = Total Debt − Cash & Cash Equivalents

Net Debt = $220.0m − $40.0m = $180.0m

Net Debt is what the company would still owe if it used all of its cash to pay down debt immediately. It's the bridge between Enterprise Value and Equity Value, because cash on the balance sheet effectively belongs to shareholders, while debt is a prior claim against them.

Step 3: Equity Value

Equity Value = Enterprise Value − Net Debt

Equity Value = $800.0m − $180.0m = $620.0m

Equity Value is what remains for shareholders once debt claims are netted against cash. For a public company, this figure ties directly to market capitalization, and it's what a buyer would actually pay shareholders in an all-equity acquisition of the business.

Final Results

• Enterprise Value: $800.0m
• Net Debt: $180.0m
• Equity Value: $620.0m

This EV-to-Equity bridge is the same mechanic used in reverse when building a DCF: after discounting projected cash flows to arrive at an Enterprise Value, you subtract Net Debt to reach Equity Value, which is then divided by diluted shares outstanding to estimate a per-share price target.

Would you like to walk through how this bridge changes when the company also has minority interest, preferred stock, or in-the-money options outstanding?