It can often be the case that we want to find the value of a company's enterprise value. If we have a think what that enterprise value is, that's the value of the company's net operating assets. So things like factories and cars, things that actually produce products that we can sell.

So I'd like to find the value of that. Why might to do this? Well, particularly for a trading comparable, really useful in a trading comparable or transaction comparable. If the enterprise value is the value of the net operating assets, I ask myself, how has that been funded? It's been funded via debt, net debt and equity. Now, it may be the case that I find it really easy to calculate the equity value, but I want to calculate the enterprise value. So I'm gonna go from the equity value to enterprise value. How do I calculate the equity value? I take the share price times it by the number of shares. I want to go from the equity value to enterprise value. So in order to do that, I take the equity value that I've got the number, and I add on net debt. The right hand side of that diagram, those two boxes must equal the left hand side. So if I add the two on the right equity value and net debt, I must get enterprise value. What if I want to go the other way? I want to start at enterprise value and go to equity value. Well, if I've done a DCF discounted cash flow, I'll have the value of the enterprise value. Maybe this company doesn't have a share price at the moment, but I'm thinking about listing it and I want to calculate its equity value. Well, in order to get to the equity value, we'd start with the enterprise value and we would subtract net debt, and that must get me to my equity value. So depending on which way you are going, either enterprise value to equity or equity to enterprise value, be careful. You either need to add or subtract net debt.