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Learn/DCF Valuation/Module 8
8.1·6 min read

The Net Debt Bridge

Your DCF produced enterprise value. Subtract net debt (and preferred/NCI) to reach equity value, then divide by shares for a price.

By the end you can
  • ✓Bridge from enterprise value to equity value
  • ✓Define net debt
  • ✓Compute an implied share price

After discounting and , the sum is enterprise value - value to all investors. Equity holders are last in line, so we subtract everyone ahead of them to isolate their slice.

Equity Value=EV−Net Debt−Preferred−NCI\text{Equity Value} = \text{EV} - \text{Net Debt} - \text{Preferred} - \text{NCI}
Net Debt = Total Debt - Cash & equivalents.
Net debt

Total debt minus cash and cash equivalents. The intuition: a company's cash could be used to pay down debt immediately, so only the net obligation reduces value to equity holders.

Implied Share Price=Equity ValueFully Diluted Shares Outstanding\text{Implied Share Price} = \dfrac{\text{Equity Value}}{\text{Fully Diluted Shares Outstanding}}
Worked example · EV to share price
Given
  • •DCF : $5,952mm
  • •Total debt: $1,000mm; Cash: $350mm
  • •Non-controlling interests: $250mm; no preferred
  • •Fully diluted shares: 80mm
Solution
  1. 1.
    1,000−350=6501{,}000 - 350 = 650
  2. 2.Bridge to
    5,952−650−250=5,0525{,}952 - 650 - 250 = 5{,}052
  3. 3.Per share
    5,05280≈63.15\dfrac{5{,}052}{80} \approx 63.15
Answer

Implied share price ≈ $63.15. Compare this to the market price to judge whether the DCF says the stock is cheap or rich.

Check yourself

Enterprise value is $2,000mm, total debt $400mm, cash $100mm, no preferred or NCI. Equity value is:

Practice in the simulator

Lock it in by building it yourself in a live, graded spreadsheet.

Bridge EV to a share price in the case →
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Assembling WACC End to End
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Fully Diluted Shares & the Treasury Stock Method