In simplest terms, the value of a company or business equals the combined values of its debt plus its equity. In Strategic Finance, the value of the whole firm to both debt and equity holders is called “corporate value;” the value of the equity portion is called “shareholder value”.
(Corporate Value) = “Debt” + Equity
You should use he market value rather than the book value of debt because during periods of rising interest rates, market values fall below book values. Using book values overstates the value of the liabilities, thus understates shareholder value. The reverse is true when interest rates are falling.
Shareholder Value = Corporate value - Debt