From enterprise value to equity
The business is worth one number; your share of it is another. The bridge between them adds spare cash, takes off debt and anything that behaves like debt, and shows every line, even the zeros.
Two different numbers
Enterprise value is what the whole business is worth, however it’s paid for. Equity value is what’s left for you, the owner, after the business’s debts are paid and its spare cash is counted. You sell the equity; the enterprise is what produces it.
The cash-flow core produces an enterprise value on unlevered free cash flow. The bridge then adds excess cash, takes off interest-bearing debt, debt-like items and unremitted regulatory liabilities, and finally weights the states of the world.
- SEnterprise value, mid-case$4.29M
- 1Excess cash+$121k
- 2Debt and finance leases−$100k
- 3Debt-like items$0
- 4Unremitted USF, 911 and telecom taxes$0
- 5Weighting the states of the world−$373k
- EConcluded equity value$3.93M
How to read it. Green adds, red subtracts, gray is a line that was looked for and came to zero. The scale starts at $3.0M so the steps are readable.
| Line | Amount |
|---|---|
| Enterprise value (cash-flow core, mid-case) | $4,285,042 |
| + Excess cash | $121,438 |
| − Interest-bearing debt and finance leases | −$100,000 |
| − Debt-like items (leases, accrued payroll and PTO, deposits, deferred taxes, carrier shortfalls) | $0 |
| − Unremitted USF, 911 and telecom taxes | $0 |
| = Equity value, mid-case | $4,306,480 |
| Probability-weighted across states (concluded) | $3,933,435 |
| Concluded, deferred revenue treated as debt-like | $3,721,435 |
Deferred revenue, shown both ways
The sample has $212k of cash collected for service it hasn’t delivered yet. There are two accepted ways to treat it, and they give different answers. The report shows both and doesn’t pick a side, because it’s a negotiating point.
Inside working capital
Settled through the working-capital target at closing. Equity value $3.93M.
Taken off as debt
A buyer takes it off the price dollar for dollar. Equity value $3.72M.
Counted once, in one place
Several items could be counted in two places. A written rule decides which one, so nothing is counted twice.
- Deferred revenueIn working capital or in debt, never both.
- The customer bookAs an asset or through the revenue forecast, never both.
- The cost of distressA separate term or part of the scenarios, never both.
- Any riskIn the discount rate or in a scenario, never both.
Why zero lines are printed
Every debt-like line is shown even when it’s zero, so you and a buyer both know it was looked for. Debt-like items are the ones a buyer’s analyst finds in diligence: leases, accrued payroll and paid time off, customer deposits, deferred taxes and carrier minimum-commitment shortfalls. Unremitted Universal Service Fund contributions, 911 fees and telecom taxes come straight off the price, because they travel with the business.
From equity value to money in hand
Equity value is still not what you take home. At the concluded $3.93M, a stock sale leaves about $2.64M to the owner after $315k of transaction costs and $983k of tax, before any seller note or earn-out. The tax rates are illustrative; your CPA and counsel set the real ones.
- Order. enterprise value per state → bridge per state → floor per state → weight the states
- Excess cash. cash above the working-capital need stays with the seller and is added
- Debt-like. every line printed at zero when zero; deferred revenue held in working capital as concluded, with the debt-like reading printed beside it
- Tax shield. the shield on existing debt ($13k) is valued in the bridge, not by lowering the discount rate
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