Market capitalisation
A company’s stock-market value: number of shares times the share price.
A company’s value according to the market
Market capitalisation multiplies the number of shares by the share price. It is used to rank companies (large, mid and small caps) and to weight most indices: the bigger the company, the more it weighs in the CAC 40 or the S&P 500.
Market cap and enterprise value
Market cap only measures the value of equity. To buy the whole company you would also take on its net debt: that is enterprise value, the basis of multiples such as EV / EBITDA.
Market cap and enterprise value
- 1 billion shares at €50: market cap of €50 billion.
- Debt €15 billion, cash €5 billion: net debt €10 billion.
- Enterprise value: 50 + 10 = €60 billion.
An acquirer pays €60 billion, not 50, for the whole.
the trillion-dollar mark
Apple became the first US listed company to top a $1 trillion market cap, in August 2018. A few years later several tech giants, Microsoft and Nvidia among them, went past several trillion.
Common mistakes
- Believing a large market cap means a profitable company.
Notitia newsroom · education, not investment advice.