One of the most common valuation mistakes is comparing an equity price to an enterprise-value multiple. They are not the same number, and the gap can be large.
Two different things
- Enterprise value (EV) is what the whole business is worth, independent of how it's financed — the figure a sector multiple (e.g. 4x EBITDA) produces.
- Equity value is what a buyer actually pays for the shares.
The bridge between them:
Equity value = Enterprise value − net debt + working-capital adjustment
Net debt is interest-bearing debt minus cash. A business with EV of $1m and $300k of net debt is only worth $700k of equity — you inherit the debt. Conversely, a cash-rich business is worth more than its EV in equity terms.
Why it matters for the deal
Most SME deals are done cash-free, debt-free: the seller keeps the cash and clears the debt at completion, and price is adjusted to a normal level of working capital. If you ignore the bridge, you'll either overpay (treating an EV multiple as an equity price on a debt-laden business) or misjudge a clean balance sheet.
The net-asset-value floor
For a barely-profitable or asset-heavy business, earnings multiples can understate value. The net asset value (what the assets are worth net of liabilities) acts as a floor — the business is worth at least its net assets, even if the earnings math says less.
In the calculator
Enter net debt, a working-capital adjustment and net asset value in the "Balance sheet & stage" section. The valuation range and score then reflect the true equity price, not just the headline multiple.
No balance-sheet figures yet? Leave them blank — the calculator treats the deal as cash-free/debt-free and you can refine later.