What is the final step in calculating UDCF to arrive at equity value?

To determine the equity value from the calculated unlevered discounted cash flows (UDCF), the final step involves subtracting net debt from the enterprise value. This is because the enterprise value represents the total value of a company, including both equity and debt financing.

When calculating equity value, you want to isolate the portion of that total value that belongs specifically to equity holders. The net debt calculation accounts for all liabilities and subtracts the available cash that could reduce those liabilities. By subtracting net debt from enterprise value, you effectively determine how much value remains for shareholders, which yields the equity value.

Calculating equity value this way is critical, as it provides a clearer picture for equity investors about what their actual ownership stake is worth after satisfying debt obligations. This clear distinction helps stakeholders make more informed investment decisions regarding their equity investments.