What are the differences between enterprise equity and valuation?
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What are the differences between enterprise equity and valuation?
When taking about valuation, it is a measure of a business’ total value. Rather than just looking at equity value, enterprise value also takes market value into consideration, which means that all ownership interests and asset claims are included in the valuation. Essentially, enterprise value is the theoretical takeover price of a company, equating to the amount it would cost to buy every share of a business’s common stock, preferred stock, and outstanding debt.
Equity is the market value of owners’ shares in a company. When referring to public companies, it is referred to as a company’s market capitalisation, which is derived by multiplying the company’s current share price by the number of shares on issue. A company’s enterprise value is the value of the company as a whole. In other words, enterprise value recognises that in addition to a company’s shareholders, there may be other groups that have a claim over the company’s assets.