{"id":23891,"date":"2021-08-17T19:06:06","date_gmt":"2021-08-18T00:06:06","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/biws\/?post_type=biws_kb&#038;p=23891"},"modified":"2024-12-29T23:12:51","modified_gmt":"2024-12-30T04:12:51","slug":"equity-value-and-enterprise-value-interview-questions-what-to-expect","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/equity-value-enterprise-value\/equity-value-and-enterprise-value-interview-questions-what-to-expect\/","title":{"rendered":"Equity Value and Enterprise Value Interview Questions: What to Expect (17:10)"},"content":{"rendered":"<p>Questions about Equity Value and Enterprise Value include their basic definitions and meaning, calculations for both based on sample share counts, share prices, and Balance Sheets, and explanations of how to pair certain financial metrics with one or the other.<\/p>\n<p>They may also ask you about why Equity Value or Enterprise Value change after specific company events, and how much they change by, as well as how \u201creal-life\u201d events impact both metrics.<\/p>\n<p>The most important points and principles for answering these questions are as follows:<\/p>\n<p>Equity Value: The value of EVERYTHING a company has (Net Assets, i.e., Total Assets \u2013 Total Liabilities), but only to EQUITY INVESTORS (i.e., common shareholders)<\/p>\n<p>Enterprise Value: The value of the company\u2019s CORE BUSINESS OPERATIONS (Net Operational Assets, i.e., Operational Assets \u2013 Operational Liabilities), but to ALL INVESTORS (Equity, Debt, Preferred, and possibly others)<\/p>\n<p>The significance of these is that Equity Value changes when the company\u2019s capital structure changes, but Enterprise Value does not \u2013 at least, not in theory, which makes it useful for analyzing and valuing companies.<\/p>\n<p>Equity Value Calculation: Diluted Shares * Current Share Price<\/p>\n<p>To calculate diluted shares, take the basic shares from the company\u2019s filings and add dilution from options, warrants, RSUs, convertible bonds, and other dilutive securities.<\/p>\n<div class='code-block code-block-2' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\" alt=\"PowerPoint Pro\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master Financial Modeling for Investment Banking With <strong>BIWS Core Financial Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Become a financial modeling pro<\/h4>\n              <p>158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 10+ detailed global case studies<\/h4>\n            <p>These include both the theory and the practical applications<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Prepare for your internship or full-time job<\/h4>\n            <p>Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/core-financial-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Core-Financial-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div><\/div>\n\n<p>Use the Treasury Stock Method (TSM) for options and assume the employees exercise their options, the company gets the proceeds, and then it uses the proceeds to repurchase some of the shares.<\/p>\n<p>Enterprise Value Calculation: Equity Value \u2013 Non-Operating Assets + Liability &amp; Equity Items that Represent Other Investors<\/p>\n<p>The most common Non-Operating Assets are Cash, Investments, and Associate Companies or Equity Investments. The most common L&amp;E line items here are Debt, Preferred Stock, and Noncontrolling Interests.<\/p>\n<p>Think of Valuation Multiples as \u201cper square foot\u201d or \u201cper square meter\u201d values for houses \u2013 let you normalize for companies\u2019 sizes.<\/p>\n<p>If the metric deducts Net Interest Expense (and Preferred Dividends, if applicable), pair it with Eq Val; otherwise, use TEV in the valuation multiple.<\/p>\n<p>Does Common Shareholders\u2019 Equity change (see: <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/statements-of-owners-equity\/\" target=\"_blank\" rel=\"noopener\">the Statement of Owner&#8217;s Equity<\/a>)? If so, then Equity Value changes; if not, Eq Val does not change.<\/p>\n<p>Do the Net Operating Assets change? If so, then TEV changes. If not, then TEV does not change.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this tutorial, you\u2019ll learn what to expect in interviews when it comes to Equity Value and Enterprise Value, and you\u2019ll understand the key principles you can use to answer any question on these topics.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-23891","biws_kb","type-biws_kb","status-publish","hentry","kb_category-equity-value-enterprise-value"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/23891","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=23891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}