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by roymurdock
3637 days ago
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The article compares DB Market Cap to Snapchat's "valuation" which is based on the terms of its latest funding round. Snapchat doesn't have an Enterprise Value because it's not a public company, so the value of its equity is currently unknown. As I said before the DB/Snapchat comparison is apples to oranges when you compare balance sheets, but both metrics (market cap, "valuation") are decent proxies for the magnitude and direction of the "true" value of the company. |
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EV in it's simplest form is Mkt Cap less Cash plus Debt. Just b/c a company isn't public doesn't mean the value of the equity is unknown.
If you buy the equity of a $100M company that has $90M in Net cash then you really are only paying $10M for it. Likewise, if the company had $1B in Net debt then you are paying $1.1B for it. Theoretically, DB could issue $10B of debt and buyback $10B of equity tomorrow and that reduces their mkt cap dramatically (their regulators wouldn't be too happy about it, though).
My point is that Banks use leverage so mkt cap is NOT a decent proxy of the value of the bank. When you compare valuation of 2 companies using Market Cap for 1 or the other (or both) is VERY misleading, especially when you have one that has a business model that uses leverage.
also, Snapchat has both an EV and Mkt cap.