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Feb 2025

How to answer this Analytical/Technical interview question about Valuation for Entry-Level Investment Banking Analyst?

Explain the difference between enterprise value and equity value.

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Investment Banking Analyst

Analytical/Technical

Asked at

Bank of America

Difficulty :

Hard

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Explanation

This technical question assesses your fundamental understanding of valuation concepts, which are crucial in investment banking. Recruiters are looking for a clear and concise explanation that demonstrates mastery of key financial principles. Avoid overcomplicating your response or confusing the two concepts. A strong answer includes definitions, formulas, and examples.

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Answer Example

Enterprise value represents the total value of a company, including debt and equity, and is calculated as market capitalization + debt - cash. It reflects the value of the business as a whole. Equity value, on the other hand, represents only the value attributable to shareholders and is calculated as market capitalization. For example, if a company has a market cap of 500M,debtof200M, and cash of 50M,itsenterprisevaluewouldbe650M.

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