Both measures are useful in assessing a company’s financial dataroomtalk.info health, but they offer different perspectives on a company’s value. Understanding the distinction between Market Caps and Enterprise Values can help you make informed buying decisions that are in line with investment goals.

Market Cap, also known as market capitalization is the total value of the company’s outstanding shares on the stock exchange. It does not consider a company’s debt, so it may give a false sense of the overall worth of a business. Enterprise Value is, on the other hand, adds a company’s debt to its equity, and subtracts it from its cash to give a more complete picture of a business’s worth.

The addition of a company’s debt can give you an idea about the financial obligations it will have to pay over time. It will also give you an understanding of its ability to invest and pay dividends. Subtracting a company’s money gives you a sense of its liquidity, or the amount of cash that it has available.

The EV/MarketCap ratio is a quick and easy way to determine the potential investment. However it is not a substitute for due diligence or financial modeling. The EV to market cap ratio is not a reliable measure of a company’s worth against its competitors because it does not take into account the variations in capital structures and risk profiles.