Equity Value

Businesses and in particular companies are normally valued on an equity’s worth basis, which is the value of holding equity or shares in a business or company. To arrive at this value, depending on the approach used to value the entity, an enterprise value is estimated by applying an appropriate earnings multiple to the earnings of the company (before any interest or tax cost). The value of long term (interest bearing) debt is deducted and any cash balance is added to the enterprise value to arrive at the equity value.

















Using earnings multiples after interest and tax (i.e. Price Earnings ratio) provides an equity value and no adjustment for debt or cash is required as the earning used to calculate the value is after servicing any debt (after interest payments).
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