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Enterprise Value vs. Market Cap: What's the Real Price Tag?

Beginner Investing • 5 min

What this lesson is about

Two companies can have identical market caps and very different real price tags once you account for debt and cash.

2 parts · a quick check after each · then the quiz

Part 1 of 2

Two companies can have the same market cap but different price tags. Market cap is simply the share price multiplied by shares outstanding. It doesn’t reflect debt or cash. That’s where Enterprise Value (EV) comes in: EV = Market Cap + Total Debt − Cash. This gives you a better idea of what it would actually cost to buy the whole business.

Insider Angle: This is why EV, not market cap, is used in ratios like EV/EBITDA. It helps compare companies with different capital structures. A company with a lot of debt might seem 'cheap' if you only look at market cap.
Enterprise valueBuying the shares is not the same as buying the business.

Quick check

How do you calculate a company's market capitalization?

Part 2 of 2

Try This: Find a company's market cap, total debt, and cash on hand. These figures are all on its latest balance sheet. Calculate the Enterprise Value manually and see how it compares.

Quick check

What is the formula for Enterprise Value (EV)?

Quiz

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