Two different numbers

Enterprise value (EV) is what it costs to own the entire operating business, debt-free and cash-free, the number an EBITDA multiple actually produces (Lesson 13). Equity value is what the shareholders actually receive, which isn't the same number the moment any debt exists.

Equity value = Enterprise value − Net debt

Net debt is total debt minus cash on hand, cash effectively reduces what a buyer needs to pay shareholders, since the buyer inherits that cash too.

  • Meridian's EV at a hypothetical £20m EBITDA × 8× multiple = £160m.
  • If Meridian is currently carrying £15m of debt and £5m of cash, net debt = £10m, so equity value = £160m − £10m = £150m, the actual number existing shareholders would receive, not the £160m headline.

This distinction is the one Lesson 16 (debt paydown) and Lesson 20 (MOIC) both depend on: PE returns are an equity-value story, and equity value moves for reasons enterprise value doesn't.

Meridian at £20m EBITDA × 8x, with £15m of debt and £5m of cash on the balance sheet.

Checkpoint

  • Enterprise value: cost to own the whole operating business, debt-free, cash-free.
  • Equity value: what shareholders receive, EV minus net debt.
  • Net debt: total debt minus cash.

If anything here still feels unclear, ask before moving to Lesson 12.