INVESTMENT BANKING / FREE WORKED LESSON
One company. Two values. What are you actually buying?
Meet Northstar ServiceTech, a fictional UK maintenance services business. Work through the difference between valuing its operations and valuing its shares. Then compare what the market and a forecast-led valuation are saying.
Free preview from the Northstar financial teaching scenario NS-IB-2026-11-02-v1.2. All financial figures are invented for education. This is not investment advice or the finished £29 guide.
01 / THE STARTING QUESTION
£500m of enterprise value does not mean £500m for shareholders.
Enterprise value represents the value attributed to the operating business before separating the claims of lenders and ordinary shareholders. Equity value is the value attributed to ordinary shareholders after making the appropriate adjustments.
For this introductory example, we assume that all £40m cash is genuinely excess, debt is worth its recorded amount and there are no other debt-like claims or non-operating assets.
Enterprise value
£500m
Less gross debt
−£120m
Add excess cash
+£40m
Equity value
£420m
With 50m ordinary shares and no dilutive instruments in this simplified example, that is £420m ÷ 50m = £8.40 per share.
Why subtract debt and add cash?
The value of the operating business is not necessarily what ordinary shareholders receive. Borrowings are a separate capital claim. Excess cash is an asset not required to support the operating earnings being valued, so it is added when moving from an appropriately defined enterprise value to shareholder value.
The bridge is only as sound as its definitions. Lease liabilities, minority interests, pensions, preference shares, investments and the treatment of cash can change the result. A model must match the basis of its enterprise value, earnings and capital claims.
02 / THE JUDGEMENT
Why might another valuation produce £655m?
Northstar's fictional FY2025 revenue is £400m and EBITDA, operating earnings before depreciation and amortisation, is £60m. At 8.5 to 9.5 times EBITDA, a simplified peer-comparison exercise produces an enterprise-value range of £510m to £570m.
A separate discounted cash flow model values forecast unlevered free cash flow, which is cash available before financing payments, using a 9% weighted average cost of capital and a 2.5% perpetual growth assumption. It produces £655.21m enterprise value, or about £11.50 per share after the same £80m net-debt adjustment.
The gap is not proof the market is wrong. It reflects different assumptions about growth, margins, reinvestment, risk and long-run cash generation. A valuation is a reasoned estimate, not an observable fact.
The DCF inputs above are teaching assumptions, not live market data. Its terminal value accounts for most of the result, so small changes in long-run growth or the discount rate can move the answer substantially.
03 / CHECK YOUR UNDERSTANDING
Your turn.
Suppose Northstar still has £500m of enterprise value and £120m of debt, but £10m of its £40m cash is needed to run the business. Assume all other conditions are unchanged. What is its equity value?
Show the worked answer
Only £30m is excess cash. Equity value = £500m − £120m + £30m = £410m. At 50m shares, this implies £8.20 per share. The operating cash requirement must be consistent with the cash flows and enterprise value used.
A second question for your interview preparation
If a buyer offers £10.50 per share for the 50m shares, what consideration goes to ordinary shareholders? Using the same £80m net debt, what enterprise value does the offer imply?
Show the second worked answer
Shareholder consideration is £10.50 × 50m = £525m. The implied enterprise value is £525m + £120m − £40m = £605m. This excludes transaction fees and any other required adjustments.
KEEP LEARNING
The full guide is still in development.
Investment Banking Fundamentals is planned as a £29 one-time guide, with five Excel-compatible models, eight modules and worked questions. The models have undergone initial calculation checks, but desktop Excel compatibility and independent professional editorial review remain outstanding. No payment is being taken for the unfinished guide.
Dataset note: This financial valuation scenario is separately versioned from an earlier synthetic Northstar commercial due-diligence exercise on Uplift. Figures from the two teaching exercises must not be combined until the master cases have been reconciled.