In converting Equity Value to Enterprise Value, which item is added to Equity Value?

In converting Equity Value to Enterprise Value, which item is added to Equity Value?

• A. Debt & Debt Equivalents
• B. Cash & Cash Equivalents
• C. Short-Term Investments
• D. Non-Core Assets

Answer: (A)

Enterprise Value reflects the total value of the firm to all capital providers, so converting Equity Value to Enterprise Value involves adding the claims that would have to be assumed by an acquirer. The key item added is debt and debt equivalents, because when you buy the company you take on its borrowings, which increases the amount you’d need to pay to acquire the business. Cash balances are not added; they typically reduce Enterprise Value since a buyer could use that cash to reduce the purchase price. Short-term investments often behave like cash in this context, and non-core assets aren’t part of the standard addition to reach Enterprise Value.

Enterprise Value reflects the total value of the firm to all capital providers, so converting Equity Value to Enterprise Value involves adding the claims that would have to be assumed by an acquirer. The key item added is debt and debt equivalents, because when you buy the company you take on its borrowings, which increases the amount you’d need to pay to acquire the business. Cash balances are not added; they typically reduce Enterprise Value since a buyer could use that cash to reduce the purchase price. Short-term investments often behave like cash in this context, and non-core assets aren’t part of the standard addition to reach Enterprise Value.