[npalli]

Here is a scary detail, Japan's stock market capitalization over the last twenty five years. Look how it keeps cycling around $4 Trillion.

   Year	Value
   1988	$3,910,000,000,000
   1989	$4,390,000,000,000
   1990	$2,920,000,000,000
   1991	$3,130,000,000,000
   1992	$2,400,000,000,000
   1993	$2,999,760,000,000
   1994	$3,719,910,000,000
   1995	$3,667,290,000,000
   1996	$3,088,850,000,000
   1997	$2,216,700,000,000
   1998	$2,495,760,000,000
   1999	$4,546,940,000,000
   2000	$3,157,220,000,000
   2001	$2,251,810,000,000
   2002	$2,126,080,000,000
   2003	$3,040,660,000,000
   2004	$3,678,260,000,000
   2005	$4,736,510,000,000
   2006	$4,726,270,000,000
   2007	$4,453,470,000,000
   2008	$3,220,490,000,000
   2009	$3,377,890,000,000
   2010	$4,099,590,000,000
   2011	$3,540,680,000,000
   2012	$3,680,980,000,000

[mathattack]

A couple things to note on this:

1) Market cap changes of the stock market doesn't tell much. If a company changes it's capital structure (more or less debt relative to stock, or Private Buyouts) the market cap changes.

2) A better metric would be "Total value of the equity and debt of all the companies" with an equity and debt breakout.

3) Even still, this would miss privately held companies. It also would just measure the asset values, and not ownership.

[npalli]

IDK, the original article talked about the stock market. On that exchange, market capitalization is measured and is a proxy for everything going on with public companies. What you are talking about in 1) and 2) is some non-existent market on which total equity and debt with vastly different characteristics is valued on one shot. What exchange do you have in mind here? The only time you fully measure all the effects to calculate the enterprise value is when you are buying the company outright. There are several practical reasons why you don’t measure and trade on the enterprise value of the listed companies. To list a few

1.On the equity side you only know the prices of outstanding shares, how will you value the non-traded shares and options? There is no simple measure to assign the control premium on a single company much less the entire stock market. This doesn’t include debt that might convert to equity on different schedules.

2.On the debt side, debt can be convertible to equity, have different seniority, payment schedule, liquidity and risk profiles. What does a consolidated number tell you? Not to mention off-balance sheet commitments and the fact that debt for some sectors like a financial company might not make any sense. What does the enterprise value of Bank of America even mean?

3.Even valuing cash has problems if you are like a US tech company with billions abroad that might be subject to myriad tax rules.

Finally with 3) you talked about private companies, at that point you probably need to look at SOE in China as well. Now you are looking at total wealth and not the stock market.

[mathattack]

Thank you for your comments/thoughts.

It's very hard to come up with a lot of these numbers. In the US it's possible to look at the aggregate corporate debt market, but you would still miss some liabilities. It doesn't change the point, though, which is that aggregate "public equity only" analysis doesn't tell you much. (Just like looking only at a company's balance sheet equity doesn't tell you much)

[adventured]

That's not true.

A company taking on more debt does not automatically alter its market cap. There is no automatic correlation for any given valuation metric, whether we're talking about how high a PE ratio should be, or how debt should be valued when deciding if a market cap is reasonable.

Your 1) item rests on the efficient market theory, which is false.

It is entirely up to investors - their reasoning and emotion - and it typically varies significantly from one industry to another, and from one company to another. For some companies, taking on debt will not alter the market cap what-so-ever. Apple for example, viewed as an extremely healthy company with massive earnings, can take on debt without it denting their market cap in a negative way.

[mathattack]

Thank you for the comments.

Here's the point I'm making...

Let's take an oversimplified view of the world. 1) In 2008 a company has $1 billion in stock value, no debt and goes belly up. 2) In 2009 a new company starts with $2 billion in debt financing, and $100 million in equity financing.

According to a "Total stock market cap" there is a drop. But that drop doesn't mean anything. A larger company was created in it's place. It just gets missed because of the debt financing.

Similar things happen within a company. If a $1 billion company goes private in a leveraged buyout, there will be $1 billion less on the public equity side (in the total stock market capitalization) but you're not measuring the increase in privately held equity or debt side. The total value of equity may also change if companies issue or pay back debt, or issue or buy back equity.

The main point I'm arguing is that total capitalization of stock only doesn't tell you much, for the same reason that only looking at equity on a company's balance sheet is an incomplete picture.

[chm]

Are these current $?

[npalli]

All in current USD (2012).

[apaprocki]

FYI the Yen has depreciated against the dollar by ~50% since 2012. (chart: http://imgur.com/3kjJf4I)