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

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

Post by Jesteroftheswamp » Fri Nov 01, 2019 9:39 pm

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

Post by alex_686 » Fri Nov 01, 2019 9:44 pm

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

Post by sambb » Fri Nov 01, 2019 9:47 pm

usually market cap

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

Post by KyleAAA » Fri Nov 01, 2019 10:18 pm

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

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

Post by firebirdparts » Sat Nov 02, 2019 3:13 am

I hear it more often referring to revenue.
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Tamarind
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by Tamarind » Sat Nov 02, 2019 6:19 am

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

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

Post by RAchip » Sat Nov 02, 2019 9:46 am

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

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

Post by MotoTrojan » Sat Nov 02, 2019 10:07 am

alex_686 wrote:
Fri Nov 01, 2019 9:44 pm
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?

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

Post by CardinalRule » Sat Nov 02, 2019 10:17 am

MotoTrojan wrote:
Sat Nov 02, 2019 10:07 am
alex_686 wrote:
Fri Nov 01, 2019 9:44 pm
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.

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

Post by JoMoney » Sat Nov 02, 2019 10:28 am

MotoTrojan wrote:
Sat Nov 02, 2019 10:07 am
alex_686 wrote:
Fri Nov 01, 2019 9:44 pm
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...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

alex_686
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by alex_686 » Sat Nov 02, 2019 11:01 am

MotoTrojan wrote:
Sat Nov 02, 2019 10:07 am
alex_686 wrote:
Fri Nov 01, 2019 9:44 pm
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
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by alex_686 » Sat Nov 02, 2019 11:05 am

JoMoney wrote:
Sat Nov 02, 2019 10:28 am
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
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by TN_Boy » Sat Nov 02, 2019 11:12 am

firebirdparts wrote:
Sat Nov 02, 2019 3:13 am
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.

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Phineas J. Whoopee
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by Phineas J. Whoopee » Sat Nov 02, 2019 11:39 am

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

Post by StandingRock » Sat Nov 02, 2019 12:56 pm

TN_Boy wrote:
Sat Nov 02, 2019 11:12 am
firebirdparts wrote:
Sat Nov 02, 2019 3:13 am
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.

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MP123
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by MP123 » Sat Nov 02, 2019 9:37 pm

StandingRock wrote:
Sat Nov 02, 2019 12:56 pm
TN_Boy wrote:
Sat Nov 02, 2019 11:12 am
firebirdparts wrote:
Sat Nov 02, 2019 3:13 am
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
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by Bfwolf » Sat Nov 02, 2019 11:50 pm

CardinalRule wrote:
Sat Nov 02, 2019 10:17 am
MotoTrojan wrote:
Sat Nov 02, 2019 10:07 am
alex_686 wrote:
Fri Nov 01, 2019 9:44 pm
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
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by JBTX » Sun Nov 03, 2019 12:06 am

MP123 wrote:
Sat Nov 02, 2019 9:37 pm
StandingRock wrote:
Sat Nov 02, 2019 12:56 pm
TN_Boy wrote:
Sat Nov 02, 2019 11:12 am
firebirdparts wrote:
Sat Nov 02, 2019 3:13 am
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
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Re: When someone says “X is a $120 million dollar company” what does that mean?

Post by dognose » Sun Nov 03, 2019 1:22 am

It’s an annual revenue statement.

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

Post by Stinky » Sun Nov 03, 2019 5:40 am

Phineas J. Whoopee wrote:
Sat Nov 02, 2019 11:39 am
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.
It's a GREAT day to be alive - Travis Tritt

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

Post by snackdog » Sun Nov 03, 2019 6:13 am

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?

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