Enterprise Value vs Equity Value — Interview Questions

Free sample from the Deskcraft question bank

Enterprise value vs equity value is the concept interviewers use to separate people who memorised from people who understand. The bridge (EV = equity value + net debt), why cash is netted, and which multiples pair with which — all sampled from the Deskcraft bank.

1. Walk me through the major line items of the balance sheet.

Model answer

Assets: current (cash, receivables, inventory, prepaids) and non-current (PP&E, goodwill, intangibles). Liabilities: current (payables, accrued expenses, short-term debt) and non-current (long-term debt, deferred taxes). Equity: common stock and APIC, retained earnings, treasury stock. Assets always equal liabilities plus equity.

2. Why does the balance sheet balance?

Model answer

Double-entry accounting: every transaction affects at least two accounts, keeping Assets = Liabilities + Equity. Intuitively, everything a company owns (assets) was funded either by money it owes (liabilities) or by owners' capital and accumulated profits (equity). Any asset change is mirrored in funding or another asset.

3. Why is EV/EBITDA more common than P/E for comparing companies?

Model answer

EV/EBITDA is capital-structure neutral, since both numerator and denominator are pre-financing, and it is pre-tax and pre-D&A, so it compares operating value across companies with different leverage, tax and depreciation policies. P/E is distorted by capital structure and one-time items below EBIT.

4. How do you get from enterprise value to equity value per share in a DCF?

Model answer

Subtract net debt, plus any preferred stock and minority interest, from enterprise value to reach equity value, then divide by the fully diluted shares outstanding to get value per share.