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16
Moving from Enterprise 
Value to Value per Share
When you have completed the valuation of core operations, as described in 
Chapter 10, you are ready to estimate enterprise value, equity value, and value 
per share. Enterprise value represents the value of the entire company, while 
equity value represents the portion owned by shareholders.
To determine enterprise value, add nonoperating assets to the value of core 
operations. The most common nonoperating assets are excess cash, invest-
ments in nonconsolidated companies, and tax loss carryforwards.1 To estimate 
equity value, subtract all nonequity claims from enterprise value. Nonequity 
claims include short-term and long-term debt, debt equivalents like unfunded 
pension liabilities, and hybrid securities like convertible securities and em-
ployee stock options. Finally, to estimate the intrinsic value per share, divide 
the resulting equity value by the most recent number of shares outstanding.
While nonoperating assets and nonequity claims may feel like an after-
thought, this is not the case. Many sophisticated investors have discovered 
substantial value hidden in nonoperating assets, especially in privately held 
conglomerates. In contrast, other investors have been burned by not accu-
rately identifying and valuing all nonequity claims against enterprise value, 
as happened in the well-publicized case of Enron. It is critical to know who 
has a claim on cash flow before equity holders do.
This chapter lays out the process for converting core operating value 
into enterprise value and subsequently into equity value. The chapter goes 
1 Throughout the book, we define enterprise value as the value of core operations plus nonoperating 
assets. Many bankers define enterprise value as debt plus equity minus cash. For a company whose 
only nonoperating asset is excess cash and owes only traditional debt, this definition is equivalent to 
our definition of the value of core operations. This simple definition of enterprise value, however, fails 
to account for other nonoperating assets and debt equivalents, which can lead to errors in valuation.

336  Moving from Enterprise Value to Value per Share
step-by-step through the process of identifying and valuing the most com-
mon nonoperating assets, debt and debt equivalents, hybrid securities, and 
noncontrolling interests, ending with the final step in valuation—estimating 
the intrinsic value per share.2
The Valuation Buildup Process
The valuation buildup begins with a company’s core operating value, based 
on discounted cash flow (DCF)—the top line of the example shown in 
Exhibit 16.1. This amount plus nonoperating assets equals enterprise value. The 
equity value—the bottom line in the exhibit—is the value that remains after 
subtracting from the enterprise value all the nonequity claims, which include 
interest-bearing debt, debt equivalents, and hybrid claims. We use the term 
nonequity claim because there are many financial claims against a company’s 
cash flows other than traditional fixed-coupon debt and shareholders’ equity.
EXHIBIT 16.1  Sample Comprehensive Valuation Buildup
$ million
DCF value of operations
5,000
Excess cash and marketable securities
50
Nonoperating assets
Excess real estate
5
Investments in nonconsolidated companies
270
Financial subsidiary
300
Tax loss carryforwards
10
Discontinued operations
 30
Enterprise value
5,665
 
Claims against enterprise value
Bank loans
(250)
Interest-bearing debt
Bonds
(550)
Long-term operating provisions
(50)
Debt equivalents
Nonoperating provisions
(75)
Operating leases
(250)
Unfunded retirement obligations
(200)
Contingent liabilities
(40)
Convertible debt
(200)
Hybrid claims and 
noncontrolling interests
Preferred stock
(100)
Employee stock options
(50)
Noncontrolling interests
(150)
Equity value
3,750
2 Estimating the value per share completes the technical aspect of the valuation, yet the job is not 
complete. It is then time to revisit the valuation with a comprehensive look at its implications. We 
examine this process in Chapter 17.