What Are the Differences Between Market Capitalization and Enterprise Value?

When you hear the words “market capitalization” or “market value,” you might wonder what the difference is between the two.

Market capitalization (also known as market value or market value of a company) is a measure of the total value of equity capital held by all shareholders of a company. It is different from enterprise value (also known as enterprise value or EV), which is the value of a company based on the total value of the debt and equity capital invested by outside parties.

 

^ Examples of Market Capitalization

Market capitalization is calculated by multiplying the current stock price by the number of shares outstanding. In other words, it is the price per share multiplied by the total number of outstanding shares. It is a key valuation metric that determines how wealthy investors value a company.

Market capitalization is calculated using the following formula:

Capitalization of a company refers to the value of the equity capital of a company. It is calculated using the following formula:

Where:

Market capitalization is one of the most common valuation metrics used to determine the value of a company. It is also known as market capitalization per share (MCPS), market capitalization per diluted share (DPS), or simply market cap. It is calculated by dividing a company’s stock price by the number of shares outstanding. It is one of the most widely used valuation metrics, as it is a key metric used.

 

Enterprise Value

Enterprise Value is another way of measuring the total value of a company.

It is the combination of two factors:

Debt: This is the total amount of money that a company owes. It is mainly represented by bonds and other financial obligations.

Equity: This includes shares of stock as well as other forms of share-based capital.

 

What is Enterprise Value?

Enterprise Value (EV) is a common way of expressing the value of a company. It is calculated as follows:

Where:

EV = Enterprise Value

P = Price of the equity share

E = Equity

 

^ Examples of Enterprise Value

There are many ways to calculate enterprise value. One way is to take the market capitalization of a company (using the stock price and the number of shares outstanding) and add the value of the company’s total liabilities.

Another way is to add the market capitalization of all the equity shares held by the controlling shareholders.

The last way is to add the market capitalization of all the equity shares held by all parties including the public.

 

What is Market Capitalization?

Market Capitalization (MC) is a common way of expressing the value of a company. It is calculated as follows:

Where:

MC = Market Capitalization

P = Price of the equity share

E = Equity

 

One of the most important things to clarify is the difference between market capitalization and enterprise value. These two terms are often confused, especially in the media and by investors. To fully understand the difference between them, it’s helpful to know how they’re calculated.

Market Capitalization is calculated by multiplying the current stock price by the number of shares outstanding. In other words, it is the price per share multiplied by the total number of outstanding shares. It is a key valuation metric that determines how wealthy investors value a company.

Enterprise Value (EV) is a common way of expressing the value of a company. It is calculated as follows:

Where:

EV = Enterprise Value

P = Price of the equity share

E = Equity

 

Key Differences Between Market Capitalization and Enterprise Value

When you hear the words “market capitalization” or “market value,” you might wonder what the difference is between the two.

Market capitalization (also known as market value or market value of a company) is a measure of the total value of equity capital held by all shareholders of a company. It is different from enterprise value (also known as enterprise value or EV), which is the value of a company based on the total value of the debt and equity capital invested by outside parties.

Enterprise Value (EV) is a common way of expressing the value of a company. It is calculated as follows:

Where:

EV = Enterprise Value

P = Price of the equity share

E = Equity

 

Key Differences Between Market Capitalization and Enterprise Value

The following are the key differences between market capitalization and enterprise value:

Enterprise Value (EV) is a common way of expressing the value of a company. It is calculated as follows:

Where:

EV = Enterprise Value

P = Price of the equity share

E = Equity

 

Key Differences Between Market Capitalization and Book Value

The most important difference between market capitalization and book value is that market capitalization factors in the price of shares sold by a company while book value does not.

 

Key Differences Between Market Capitalization and Net Asset Value

The following are the key differences between market capitalization and net asset value (NAV):

NAV is the most common way that mutual fund companies value their portfolio investments. It is calculated as follows:

Where:

NAV = Net Asset Value

P = Price of the equity share

E = Equity

 

Key Differences Between Enterprise Value and Discounted Cash Flow

The most important difference between enterprise value and discounted cash flow is that the former factors in the price of shares bought by a company while the latter does not.

 

The Importance of Market Capitalization

Market capitalization is one of the most widely used valuation metrics, as it is a key metric used to determine how wealthy investors value a company.

It is also one of the most important factors that affect the price of a stock, as it is what determines how many shares of stock can be bought at any given price.

 

Examples of Market Capitalization

There are many examples of how market capitalization can be used to value a company, such as:

Valuing a company based on the total value of its shares, regardless of who owns them.

Valuing a company based on the price per share of all the shares currently publicly traded.

Valuing a company by looking at the market capitalization of a comparable public company.

 

Conclusion

As can be seen from the information above, market capitalization and enterprise value are very different things. While market capitalization is a simple way to determine the value of a company, enterprise value is a much more complex metric that takes debt and equity into consideration. Furthermore, market capitalization does not take the price of shares owned by the company into account while enterprise value does.

Thus, while market capitalization is a valuable metric, it is important to remember that it is not the same as enterprise value. Similarly, while book value and net asset value are important metrics as well, they are different from market capitalization and each other.

Date
2022-04-06