Enterprise Value vs. Market Cap
Basis | Enterprise Value | Market Capitalization |
---|---|---|
Definition | Represents the total value of a company, including both equity and debt | Represents the market value of a company’s outstanding equity |
Components | Includes market capitalization, total debt, and cash/cash equivalents | Only considers the market value of outstanding shares |
Equity vs. Debt | Incorporates both equity and debt | Considers only equity |
Scope | Offers a comprehensive assessment of a company’s total value | Provides a measure of a company’s equity value only |
Financial Health Assessment | Provides insights into a company’s debt burden and financial stability | Limited in assessing a company’s financial health |
Investment Decisions | Helps in evaluating the company’s overall worth, including its debt obligations | Useful for assessing the company’s attractiveness as an equity investment |
Industry Comparison | Useful for comparing companies across different industries and financial structures | Commonly used for comparing companies within the same industry based on market value |
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