Enterprise Value vs. Market Capitalization: What’s the Difference?
The main difference between Enterprise Value and Market Capitalization is that Enterprise Value includes debts while Market Capitalization does not.
Before we move to more differences, let’s first understand Enterprise Value and Market Capitalization:
- Enterprise Value: Enterprise Value is the total cost to buy a whole company. It includes money for stocks and debts. Think of it as the full price tag for everything the company owns and owes.
- Market Capitalization: Market Capitalization is like a fancy word for the total value of a company. It shows how much a company is worth based on its stock price and how many shares there are.
Now, let’s get to Enterprise Value vs Market Capitalization:
Major differences between Enterprise Value and Market Capitalization
| Enterprise Value | Market Capitalization |
|---|---|
| Enterprise Value considers a company’s debt and cash. | Market Capitalization only looks at its stock price multiplied by the number of shares. |
| Enterprise Value includes debt in its calculation. | Market Capitalization does not account for debt. |
| Enterprise Value reflects the true cost of acquiring a company. | Market Capitalization provides a simplified view of the company’s total value. |
| Enterprise Value is a more comprehensive measure of a company’s total value. | Market Capitalization is a more straightforward metric. |
| Enterprise Value can be used to compare companies with different capital structures. | Market Capitalization cannot provide this comparison. |
So, these are the main differences between the entities.
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