Market Capitalization vs Enterprise Value | Formula & Examples
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Market Capitalization vs Enterprise Value | Formula & Examples


hey the folks welcome to wallstreetMojo investment-banking tutorial and the topic for today is market gap prices
and price value are the same or are they different alright so when we talk about
market cap market capitalization is basically the number of shares
outstanding for a company times the value of per share which is being traded
and market cap would fit in the equation for enterprise value so if you look at
the overall enterprise value market gap can be as a part of or it is a part of
enterprise value and enterprise value is the overall overall value of the firm
and market cap is market cap forms a part of and under price value alright so
now let’s look at the website here and see what’s given here alright so if you
look at the computation here like what we discussed you know the share
outstanding is the total number of stocks issued by a company excluding the
preferred shares and the price per share which is which you would get on Google
you know for a particular company so if you look at the table here it in updates
the market cap of a select few companies you know and the companies are given
here and the shares which are outstanding which is in millions or
billions whatever you know and the price of the share and then it gives you the
market cap which is in billions all right so if you look at the value for
Apple or Google you know the market cap for them is 591 billion and for Google
it is 539 billion it is obviously a data which belongs which pertains to 2015 but
it is just to give you a perspective all right
so now let us look at the enterprise value so enterprise value is nothing but
the equity value plus the value of debt and from that the cash and cash
equivalents has to be deducted alright so when you when you talk about debt and
cash and cash equivalents if you deduct from the overall debt the value of cash
and cash equivalents you would get net debt and net that plus the enterprise
value or the equity value which is commonly referred to as the overall
picture is the enterprise value so that’s what’s given here so enterprise
value is the market cap plus the debt plus the minority shares plus the
preferred equity less cash and cash equivalents and this whole thing would
give you the value of enterprise all right so now let’s look at the value for
enterprise value for Amazon and try to figure out you know what we have
discussed so if you go to the this is the Edgar page for Amazon and if you go
to 10-Q you would find the latest reports for the for the first quarter of
2018 and if you look at the value for cash and cash equivalents
this is in yeah so this is $16 billion dollars here cash sixteen
billion dollars cash in hand and the overall debt is 22-24 and 48 which which
is this short-term debt and long-term debt you know the same so the overall
debt is to the tune of somewhere and somewhere to the tune of a $100
billion dollars less $16 billion dollars would give you the net debt the value
for net debt all right and in that we will have to add the value of equity or
the market gap which would be achieved by multiplying the the value of the
stock times the shares outstanding alright this so so the diluted shares
outstanding data here is this $490 million shares and
you know the the stock prices let’s try to figure out stock Amazon so Amazon is
trading at $1603 dollars so let’s do the math here and we would be through alright so the value of a stock is for
Amazon $1602 .91 Dollars okay and the number of shares outstanding the diluted shared of signing is $490
million so $490 million all right and so the market cap market cap would be this
times this now this is this data is in millions so it just it just means 785
billion dollars all right so this isn’t millions because this value was in
millions 490 all right now let’s try to figure out the value of net debt and
also look and and also see if there is any preferred share so net debt is going
to be the overall debt which is nothing but the long and short term debt less
the cash and cash equivalents all right so now let let us look at the values
here so cash and cash equivalents is $16 billion dollars and I think the value for the shares
outstanding should be $498 because it pertains to 18 I took it for 2017 so
there’s a mistake here so 498 is the value should be the value instead of $490
all right so the market cap changes a little bit but then it has to be correct
now the overall debt overall that is going to be the total of short term and
long term so long term debt here is this much long term debt short term debt is
total current liabilities so total current liabilities is this much 48
billion dollars and the last thing is other long term liabilities we will take
this into a consideration as well and this is going to be 22 billion dollars
so the overall debt is going to be the sum of all of these three numbers and
the net debt is going to be this less this so net debt is somewhere to the
tune of 78 billion dollars all right now we have already calculated the market
cap or the equity value of the company which is which is 798 billion dollars
and before calculating the enterprise value I will just look at the value of
preferred stock so there is nothing nothing for preferred stock here so we
are good to go so the enterprise value would be the total of the market gap and
the net debt so this is going to be the enterprise value so now let’s get back
to the website here and look at the look at the equation once more so what we did
just now is we took the market cap here this this particular value and we took
the debt value and we took the cash and cash equivalents value and we ignored
minority shares and preferred equity because we don’t have that all right and
that’s how we calculate the enterprise value and we also calculate the market
cap all right a market capitalization so the overall and price value of the
company is $876 billion dollars all right so I hope I
hope you’ve had fun and bye for now

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