Use This Instead of Market Cap (Enterprise Value Explained)

In this video you will learn what enterprise value is, how it's calculated, and how and when to use it.

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To explained enterprise value first Market Cap has to be explained.

And when you explained Market cap you have to also explained shares outstanding...

...Which if course means covering share issuing and share buybacks...

... and finally stock splits need to be covered as well.

Once these fundamentals are covered we're able to talk about market cap.

If Market Cap is the "price tag" on the entire company, enterprise value is the "true cost" to buy the entire company.

Enterprise value factors in CASH, DEBT, PREFERRED STOCK, AND MINORITY INTERESTS.

Some companies can appear to be cheap when looking at only the market cap or only the Price to Earnings ratio (which uses price aka market cap)...

...However Enterprise value, or a metric like Enterprise value /Earnings before Interest & Taxes (EBIT) might paint a much clearer picture.

I would encourage you to consider looking at Enterprise Value as it could help you to uncover some hidden value and it can help you to avoid over paying for a company that looked cheaper than it was!

Video dedicated to Market Cap:    • Market Cap Explained | What Does Market Ca...  

Market cap is short for Market Capitalization and is equal to the price per share multiplied by the number of shares outstanding. If you only have the price per share and no other information then you won't get far! Market cap represents the "price tag" on the entire company.

Shares outstanding is the number of shares a company's ownership has been divided up into. Companies can have a widely varying number of shares outstanding and the number of shares outstanding can also change. Market cap is the true "price tag" on the entire company.

Successful investors determine what they think a company is worth in terms of its entirety and then compare that estimate of value to its "price tag" AKA market cap.

If your estimates of value are lower than the price tag then it might be a good buy because you're buying it for less than it's worth. If the market cap AKA "price tag" is higher than what you think it's worth, it's probably not a great investment because it's priced too expensively at this time.

Shares outstanding can change as companies do share buybacks, issue new shares, or do stock splits.

Companies do share buybacks as a way of returning value to shareholders (an alternative to paying a dividend) and this works by increasing your ownership percentage, since your ownership of the total increases as the total amount decreases. Issuing new shares does the opposite, your ownership percentage decreases as the total increases but the amount you own remains the same. However, the company you own does have more money as a result of the new share issuing.

Special thanks to my incredibly beautiful, smart, and creative girlfriend, Stephanie, for her editing wizardry and creative insights and ideas.

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