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FYI, valuation is defined as enterprise value, not market cap. And in general, things like liquidity discounts and control premia also mean market cap is a poor
by 001sky 13y ago
FYI, valuation is defined as enterprise value, not market cap. And in general, things like liquidity discounts and control premia also mean market cap is a poor proxy for acual or fungible value, even for the equity. The reason is that the marginal price of the equity is not the average price (in terms of market depth). simply multiplying a market that is 1-2% deep @ p=X x 100% of shares outstanding is flawed from the perspective of suplly and demand. these comments are made by others in the thread elsewhere, but worth repeating.
- JumpCrisscross 13y agoEnterprise value is an M&A metric. As an equity holder, equity value is the valuation of concern. Market cap is generally the best estimator of equity value. Takeover value, equity value in the event someone wants to own all (or a controlling part of) the equity, is a different beast. It includes the strategic optionality that comes with owning a company. Having to take what management doles out thus produces a different equity value than takeover value. Market cap is the best estimate of this passive investor's equity value.