Enterprise Value: GE Still Bigger Than Goog

Om caused a stir with this post today: In Market Cap, Google Now Bigger Than GE. No doubt.

But GE still dominates if you look at enterprise value. GE: $580 billion vs GOOG: $92 billion.

Why would you look at enterprise value instead of market cap?

Think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company’s debt, but would pocket its cash. EV differs significantly from simple market capitalization in several ways, and many consider it to be a more accurate representation of a firm’s value. The value of a firm’s debt, for example, would need to be paid by the buyer when taking over a company, and thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation.

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