I'm looking to buy a house, and I want to get that house valued.

So I go out to a surveyor and they help me out.

They tell me that the house is worth 500,000. Fantastic.

I buy the house, and now I have an asset worth 500,000. However, when I came to buy it, I didn't quite have 500,000 of my own money to spend.

I only had 200,000 of my own money being equity value that I put in. I had to go and borrow the rest from the bank.

So that gave me a mortgage of 300,000.

What you might notice is that regardless of what the financing was, the house value is still 500,000.

I could have had equity of 100,000 and that would've meant a mortgage of 400,000, or I could have had equity of 250,000.

That would've meant a mortgage of another 250,000.

The important thing here is that both sides are the same, and the asset value, the value of the house is not affected by the type of financing.

We can use this idea when looking at a company and its enterprise value.

In looking at the EV or enterprise value to equity bridge, here we've got something called the enterprise value.

This is your asset value and it's the value of the operating business that's going to be the value of your factories, your production lines, plants, equipment, trucks, vans, inventory, anything that's involved in the actual operations of the business.

But how did I finance that? Well, I may have financed some of that by equity.

I could have sold some shares out to some shareholders.

Where else can we get finance from, from debt holders? In this case we call it net debt. Any cash that we've got, and that's not actually being used in the operations of the business, well, we want to net that off any debt we might owe.

So net debt is your debt minus cash.

So how have I funded my operating business, my enterprise value with equity and with net debt? Importantly, the value of that enterprise value is not necessarily related to the financing type.

My net debt could have been much bigger and my equity value could have been much smaller. Regardless, the enterprise value wouldn't have been affected.