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Market cap vs. enterprise value
Also called: market capitalization, market cap, enterprise value, EV, net cash
Market cap is the stock market value of a company’s shares; enterprise value adds debt and subtracts cash to value the business itself.
Explanation
Market capitalization is the share price times shares outstanding: what all the equity is worth at today’s price. Enterprise value (EV) estimates what it would cost to buy the whole business: market cap plus debt (and, in fuller versions, preferred stock and minority interests) minus cash and short-term investments.
The two diverge most at the extremes. A company with $500 million of debt and a $200 million market cap has an EV of about $700 million, so the stock is a leveraged bet on the business. A cash-rich small cap can have an EV near zero or below: the market values its operations at less than nothing, usually because it expects the cash to be burned.
Use EV for multiples that relate to the whole business (EV/revenue, EV/EBITDA) and market cap for anything per share. Check the share count is current: after heavy dilution, a market cap built on an old count is too low.
Why it matters
Market cap tells you what shareholders own; EV tells you what the business is priced at. A negative EV looks cheap, but for a cash-burning company it usually prices in future dilution.
How Equity Dictionary measures it
The Overview tab shows market cap with enterprise value (market cap + total debt − cash and short-term investments), net cash and EV/revenue in its valuation card. The Dilution tab’s implied dilution converts the 12-month funding gap into new shares at market cap less a typical 15% offering discount.
Related terms
- Public float: The market value of shares held by non-affiliates, meaning everyone except officers, directors and controlling holders: the SEC’s yardstick for company size.
- Free cash flow (FCF): Operating cash flow minus capital expenditures: the cash a business generates, or consumes, after paying to maintain and grow its assets.
- Dilution: The shrinking of each existing shareholder’s ownership stake when a company issues new shares.
- Cash runway: How many months a company can keep operating on the cash it has, at its current burn rate, before it must raise more.
Plain-English summary for research; not legal or investment advice.