Why enterprise value ignores capital structure

Enterprise value is meant to capture the worth of a company's core operating business, regardless of how that business is financed. Equity value, by contrast, depends heavily on the mix of debt and equity a company chose.

That is why the bridge from equity value to enterprise value adds net debt, preferred stock, and minority interest. Two companies with identical operations but different debt loads should have similar enterprise values even though their equity values differ.

The practical payoff is comparability. Because enterprise value strips out financing decisions, EV-based multiples like EV/EBITDA let you compare companies with very different capital structures on an apples-to-apples basis.