Why isn't a company's price just its market cap?

Market cap tells you what the shares are worth. But if you were buying the whole business, the shares are only part of the bill. Enterprise value (EV) is the price of the entire operation — and it changes how you compare companies.

The takeover-price intuition

Picture buying a company outright. You pay the shareholders for their shares (that's market cap). But you also inherit the company's debt — you're now on the hook for it. Against that, you get to keep the company's cash, which you could use to pay some of that debt straight back. So the real economic price is:

EV = market cap + total debt − cash

This is why EV is often called the "takeover value." It's what the business actually costs once you account for its whole capital structure, not just its equity.

Two companies, same market cap, different price

Here's the payoff. Two companies each have a market cap of $10 billion.

• Company A carries $5 billion of debt and $1 billion of cash → EV = 10 + 5 − 1 = $14 billion.
• Company B has no debt and $2 billion of cash → EV = 10 + 0 − 2 = $8 billion.

Same market cap, but buying Company A actually costs $14 billion of economic value and Company B only $8 billion. Market cap alone made them look identical. EV shows they are nearly twice apart. That difference is leverage — how much of the business is financed by debt — and it's invisible to any price multiple.

Why this matters for comparison

When you compare two companies with a price multiple like P/E, you are quietly ignoring their debt. A heavily indebted company and a debt-free one can show the same P/E while being priced completely differently as whole businesses. EV puts them back on equal footing before you compare — which is exactly why the next lessons build multiples on top of EV instead of price.

In the data

The three pieces are in two tables. The market's price for the equity:

And what the company owes and holds, at its last fiscal year end, with net debt (debt less cash) already worked out:

Rebuilding enterprise value from these will not exactly reproduce a published figure. Market capitalisation is a live number that moves with the price, while the debt and cash are fixed at one fiscal year end. The discrepancy is a date mismatch, not a data error.

Try it now

1. Compute enterprise value yourself: market capitalisation + total debt − cash. Notice whether it lands above or below market cap, and by how much.
2. Now check your answer against the published figure:

Expect a discrepancy, and understand it before blaming the data: the section above says why. The net debt row in the second table is the shortcut — debt less cash, already computed. 3. Repeat for a telecom. Its market cap and published enterprise value:

And its debt at the last fiscal year end:

Compute market cap plus net debt, compare it with the published figure, and say how far enterprise value sits above market cap as a percentage of market cap. Then do the same sum for the first company. Leverage made visible.