Which valuation approach focuses on ownership and is affected by financing decisions?

• A. ENTVAL
• B. EQVAL
• C. Net OpAs
• D. DCF

Answer: (B)

Equity valuation focuses on what owners actually own—the residual claim after all debts are paid. Because the amount available to shareholders depends on how the company is financed, financing decisions directly affect equity value. Leverage changes risk and the required return on equity, debt tax shields alter cash flows to shareholders, and the capitalization structure determines how cash flows are split between debt and equity. When valuing equity, you typically use cash flows to equity or dividends, which inherently incorporate financing effects, making this approach sensitive to how the company is financed.

Enterprise valuation, by contrast, looks at the value of the firm to all capital providers and is less about ownership stakes, so financing decisions don’t shift enterprise value in a perfect framework. Net operating assets concentrate on operating assets, not ownership claims, and a generic DCF is a method that can value either equity or the firm depending on the cash flows used.