When someone says “X is a $120 million dollar company” what does that mean?

[Jesteroftheswamp]

When someone says, for example, “Invisalign is a 500 million dollar company”, where does a figure like that come from? Is it the market cap or the company’s earnings?

[alex_686]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

[sambb]

usually market cap

[KyleAAA]

Usually market cap if it’s public. If not, they might mean revenue.

[firebirdparts]

I hear it more often referring to revenue.

[Tamarind]

Annual revenue, especially if the company being discussed is private.

[RAchip]

Almost always a reference to gross revenue in connection with a private company.

[MotoTrojan]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

Can market cap really be adjusted with new shares or buybacks though? Won’t the share price change to reflect that?

[CardinalRule]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

Can market cap really be adjusted with new shares or buybacks though? Won’t the share price change to reflect that?

Absent other factors, no and yes, respectively.

[JoMoney]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

Can market cap really be adjusted with new shares or buybacks though? Won’t the share price change to reflect that?

Maybe...
Imagine you have a company with $1,100 in the bank and 11 shares outstanding valued at $100 a share.
If the company takes $100 from the bank and eliminates 1 share, you now have a $1,000 company divided by 10 shares.

The future value comes from what your expectations for that company are going forward, if you expect the company to make as much or more than it did previously each remaining share may go up in value. If you have a poor outlook and expect the company to burn through its bank account and go bankrupt, well...

[alex_686]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

Can market cap really be adjusted with new shares or buybacks though? Won’t the share price change to reflect that?

Buy backs don't affect share price.

Consider a company that has a Enterprise Value of 100m. It is currently financed with 40m equity / 60m debt. It then issues 10m in new bonds and buys back 10m in equity. Now it is 30m equity / 70m debt. Or you could do this backwards.

This is based on the Modigliani-Miller Theorem, and is adjacent to the "Do Dividends Matter" threads here on Bogleheands. If M&M does not hold, management could manipulate things to generate free money. The theory holds up pretty well in real life. You have to look at 2nd and 3rd order effects to find differences between fact and theory.

[alex_686]

Maybe...
Imagine you have a company with $1,100 in the bank and 11 shares outstanding valued at $100 a share.
If the company takes $100 from the bank and eliminates 1 share, you now have a $1,000 company divided by 10 shares.

The future value comes from what your expectations for that company are going forward, if you expect the company to make as much or more than it did previously each remaining share may go up in value. If you have a poor outlook and expect the company to burn through its bank account and go bankrupt, well...

To extend and simplify. You are increasing the earnings per share - that is good. If you have a positive outlook... You are still leveraging the company up, increasing the volatility. Increased volatility should translate into a higher discount rate for that future cash flow. Also, you are increasing the chance that the company will go bankrupt. In theory you should wind up back where you started.

[TN_Boy]

I hear it more often referring to revenue.

+1 That is usually the context I hear -- whether for public or privately traded companies. Gross revenue.

[Phineas J. Whoopee]

The great thing about is "X is a $120 million dollar company" is a $Y company has no strict accounting definition. People can project their own hopes and fears onto it.

It is, I think, a good idea to question anybody who makes such a statement. They may not themselves know what they mean by their words.

PJW

[StandingRock]

I hear it more often referring to revenue.

+1 That is usually the context I hear -- whether for public or privately traded companies. Gross revenue.

I concur, almost always this phrasing refers to revenue.

[MP123]

I hear it more often referring to revenue.

+1 That is usually the context I hear -- whether for public or privately traded companies. Gross revenue.

I concur, almost always this phrasing refers to revenue.

Yes, when I hear that I assume they're talking about gross revenue or sales.

But it's a little ambiguous and could mean different things I suppose.

[Bfwolf]

Depends on context. Market cap is popular. “Enterprise Value” is also common. This would be market cap + debt + a few other adjustments. After all, market cap can be adjusted by either issuing new shares or doing a stock buy back. However enterprise value should not change with these actions.

Can market cap really be adjusted with new shares or buybacks though? Won’t the share price change to reflect that?

Absent other factors, no and yes, respectively.

A buyback absolutely does reduce market cap, just like a dividend does. It distributes some of the company's cash to shareholders. The company's market cap is reduced by the cash distributed.

[JBTX]

I hear it more often referring to revenue.

+1 That is usually the context I hear -- whether for public or privately traded companies. Gross revenue.

I concur, almost always this phrasing refers to revenue.

Yes, when I hear that I assume they're talking about gross revenue or sales.

But it's a little ambiguous and could mean different things I suppose.

Agree, I've always heard it as referencing revenue.

[dognose]

It’s an annual revenue statement.

[Stinky]

The great thing about is "X is a $120 million dollar company" is a $Y company has no strict accounting definition. People can project their own hopes and fears onto it.

It is, I think, a good idea to question anybody who makes such a statement. They may not themselves know what they mean by their words.

PJW

This is the best answer.

"X is a $120 million company" isn't a precise term. It could mean any number of things, as discussed in other posts in this thread.

[snackdog]

It normally refers to value of the company, whether public or private. What could you buy it for today?

Revenue is meaningless. GE has annual revenue >$20B but recent net income of negative $10-20B. You could buy it for $90B (market cap), but would you?