IB INTERVIEW FOUNDATIONS
Enterprise value & equity value
Keep operating value separate from financing claims.
An enterprise multiple applied to an enterprise earnings metric values the operating business. To reach common equity, account for debt, excess cash and other claims consistently. Share dilution is a second bridge, not a reason to mix value definitions.
Ask yourself: Whose cash flow or claim does this value represent?
Put it into practice
Start with the enterprise-to-equity bridge. Then explain treasury stock dilution without confusing gross issuance with net shares.
Beyond the calculation
State assumptions before calculating. Explain the result in plain English, then identify what information could change your conclusion. A numerical match alone does not show that your reasoning is sound.