Equity value

Enterprise value looks at the operating business as a whole. Equity value narrows that down to what the owner’s shares are actually worth, once the business’s debts and cash position are factored in. For a small or medium business being sold, equity value is closer to what the seller actually receives.

How debt and cash move the number

Debt reduces equity value dollar for dollar, because a buyer taking on the business is also taking on — or paying off — its liabilities. Cash on the balance sheet works the other way: it usually adds back to equity value, since it’s a resource the buyer effectively receives along with the business.

Why the distinction matters in a sale

In a share sale, the buyer is technically acquiring the shares of the company, so equity value is the natural reference point for pricing. In an asset sale, the structure is different — debt and certain liabilities are often left behind with the seller — which changes how enterprise and equity value line up with the actual purchase price.