What must be subtracted from the enterprise value to calculate the market value of a company using the unlevered cash flow approach?

To determine the market value of a company when using the unlevered cash flow approach, it is essential to account for the company's capital structure. Enterprise value reflects the total value of a business, including equity and debt, and does not provide a direct reflection of the market value attributable to equity holders.

By subtracting net debt and other necessary adjustments from the enterprise value, you refine your calculation to find the equity value. Net debt, which is calculated as total debt minus cash and cash equivalents, represents the actual financial obligations of the company that equity holders must consider. Other adjustments may include minority interests or preferred equity, which also must be accounted for to arrive at a true market value from the enterprise value.

This process ensures that you accurately reflect how much of the enterprise value is attributable to the equity after accounting for the company's liabilities. In contrast, subtracting fixed assets, cash reserves, or current liabilities does not provide a complete picture of the necessary adjustments to transition from enterprise value to equity value. Thus, subtracting net debt and making other adjustments is essential to accurately calculating the market value using the unlevered cash flow approach.