Enterp✅rise Value vs. Market Capඣitalization: An Overview

Enterprise value is the sum of a company's market capitalization and total debt, less its cash and cash equivalents. It is a metric considered by many to be more accurate than market capitalization.

Market capitalization is the product of a company's number of outstanding shares and current market value. It is a metric used to estimate a company's value quickly.

Each offers a sense of a company's overall value and, more importantly, a number that can be used to compare its value to that of its competitors in the same industry. Both numbers are frequently used to determine a fair price for a company's stock shares.

Market Capitalization

Market capitalization (market cap) is a simple and direct way to calculate a company's size and value, and, consequently, its potential growth rate and risk outlook.

Market cap is the total value of all outstanding shares of the🤡 company's stock. It is calculated by multiplying the stock's current share price by the number of shares outstanding. The figure is one of the key statistics that appears with every stock listed in a financial news site or a broker's site.

For example, if XYZ stock is trading at $1෴4 per share and has 2 million shares outstanding, its market capitalization is $28 million.

Large-, Mid-, and Small-Cap

Market capitalization can also give you a🐓n idea of the growth and risk to expect from a particular stock. Companies are classified according to market capitalization. The broad categories are large-, mid-, and small-cap.

Gener𓆉ally, large-cap companies are well-established successful companies with steady streams of revenue. Their growth ove🐽r time may be slow but steady. Their price swings are less volatile than those of smaller companies.

The most appealing small-cap stocks are thos𒈔e that are experiencing accelerated growth, but that growth probably will be at the cost of higher ri🐭sk and price volatility.

Market capitalization demonstrates that share price alone tells you little about a company's overall value. Just because a stock has a high share price does not necessarily mean the company is worth more.

A great example of this is Ford Motor Company (F), with a seemingly low share price of $9.63 as of April 19, 2025. It had 3.963 billion outstanding shares. However, Ford is a huge automaker. Its market capitalization was about $38&n꧒bsp;billion, demonstrating its market value.

If a company were to be purchased, market capitaliꦛzation would reflect the cost to acquire the outstanding equity.

Enterprise Value

Market capitalization omits some important facts in the overall 澳洲幸运5开奖号码历史查询:valuation of a company. Most importantly, it does not take into conside💫ration the company's debt. It is ca𝕴lculated by adding its market cap and total debt, then subtracting all cash and cash equivalents.

Enterprise value is a more accurate measure of a company's real worth because it takes into consideration its debt obligations.

Value-Spotting

Enterprise value is common📖ly used by value investors as a way to spot companies that have been undervalued by the markets. A company with solid earnings and possibly even a decent dividend looks good on the surface. The company might also have a large market capitalization. However, if you look further and calculate the company's enterprise value, you may find serious debt obligations that could pose a problem.

If you compare the enterprise🐓 value of an equally well-earning company and find it has a higher enterprise value, purchasing the latter stock would be a better overall vܫalue.

The Bottom Line

Market capitalization and enterprise value are two metrics used to𓂃 value ♑a company. While useful in many circumstances, market cap is more simple, and thus, less useful when valuing a company than enterprise value.