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What is the difference between market cap and enterprise value?

An example of an AI chatbot conversation about market cap vs enterprise value.

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You

What is the difference between market cap and enterprise value?

MagicBuddy
MagicBuddy

Market cap is the total market value of a company's outstanding shares, while enterprise value includes market cap plus debt and minus cash.

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You

Why is enterprise value considered a better measure?

MagicBuddy
MagicBuddy

Enterprise value provides a more comprehensive view of a company's total value, especially when considering acquisitions.

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You

Can you give an example of how to calculate both?

MagicBuddy
MagicBuddy

Sure! If a company has 1 million shares at $50 each, its market cap is $50 million. If it has $10 million in debt and $5 million in cash, its enterprise value is $55 million.

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You

Are there situations where one is preferred over the other?

MagicBuddy
MagicBuddy

Yes, investors often prefer enterprise value when evaluating companies with significant debt or cash reserves.

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