Enterprise Value & the Bridge
Enterprise value is the value of the core operating business to ALL investors. Learn the bridge from equity value to EV and back.
- ✓Define enterprise value and who it belongs to
- ✓Walk the EV ↔ equity value bridge in both directions
- ✓Explain why excess cash is subtracted
The value of a company's core operating assets, attributable to all providers of capital - equity, debt, preferred, and minority holders. It excludes non-core items like excess cash.
Read the bridge as a story. Start with what equity holders own. Add the claims of other capital providers (debt, preferred, minority holders) because is value to everyone. Subtract excess cash, because cash isn't a core operating asset - an acquirer effectively gets it back.
- ›What do common shareholders own?
- ›Value of ALL assets (core + non-core), but only to equity
- ›Net of debt and other obligations
- ›What are the core operations worth?
- ›Value of CORE assets, but to ALL investors
- ›Independent of how the company is financed
- •Price per share: $86.79; : ~1.6bn → ~$138bn
- •Add total debt: ~$3.5bn
- •No preferred, no
- •Subtract excess cash: ~$3.2bn
- 1.Bridge up from
≈ $139bn. Note how close it is to here - Nike carries little debt and modest cash, so the bridge is short.
An unlevered DCF (the standard one) discounts cash flows available to all investors, so it produces enterprise value. To get to a share price you must bridge → by subtracting . Keep this direction straight - it's the #1 source of DCF errors.
An unlevered DCF produces enterprise value. To get equity value, you should: