How do you derive equity value from enterprise value?

To derive equity value from enterprise value, subtracting net debt, preferred stock, and minority interest is the correct approach. This is because enterprise value reflects the total value of a company, including all its assets and liabilities, while equity value is concerned solely with the value attributable to shareholders.

The calculation involves starting with the enterprise value, which includes not just the market capitalization of the company but also the total debt and subtracts cash and cash equivalents. To arrive at equity value, you need to account for all sources of financing and interests that do not belong to equity holders.

Net debt is calculated by taking total debt and subtracting cash available, which gives a clearer picture of how much debt affects the equity portion. Additionally, preferred stock and minority interest must also be accounted for, as these represent claims on the assets of the company that are prioritized over common equity holders.

Thus, the subtraction of these components from enterprise value ensures that you are left with the value that is truly attributable to equity holders, making this answer the best approach to derive equity value from enterprise value.