Re:AMD passes Intel in market cap
by wavefunction22 on Monday August 01, 2022 @03:01PM
(#32310647)
Market cap isn't saying what the 'company' is worth. It's a measure of the equity portion of the ownership of the company. It excludes the debt portion of the ownership.
Right now GM has an enterprise value of $130B. That means it's expected to spit out $130B of cash over its lifetime (discounted to a present day value). But the market cap is only $50B. Meaning $80B of that future cash will go to GM's lenders.
It of course feels super counter-intuitive to add debt (which feels like it should be a negative) to the valuation. But I always felt the house analogy gives an intuitive everyday example.
Your house analogy and the way you explained it does not make sense to me. Since market cap is what the market is saying a company is worth, it isn’t right to equate that to the “$100k of equity” in your example house. It’s more correct to equate it to the $1 million value the house has.