Market cap vs valuation: the difference, with Indian examples

Market cap, short for market capitalisation, is the total value of a listed company's shares at the current price. The formula is share price multiplied by the number of shares outstanding. If a company has 100 crore shares and the price is ₹200, its market cap is ₹20,000 crore.

The number changes every trading day because the price does. On the NSE and BSE, anyone can see it, so market cap is the most visible yardstick for a listed firm. It is a price set by buyers and sellers, not an audited figure, and it can swing sharply in a week without anything changing in the business.

Valuation is any estimate of what a business is worth. A listed company's market cap is one kind. Other kinds come from analysts, from a deal between a buyer and a seller, or from a funding round. The term is wider than market cap, so every market cap is a valuation but not every valuation is a market cap.

For a private startup, no screen shows a price. The usual figure is the post-money valuation: the price per share paid in the latest round multiplied by all shares counting the new ones and the pending option pool. It is agreed in negotiation and appears in filings and news.

Investors and founders work with several methods. The most common in India is the funding-round method: the new investor and the company agree on a price per share, and that sets the valuation. Another is a multiple of revenue or profit, using firms that are alike. A third is a discounted view of future cash flows, which depends on guesses about growth.

Because no market trades the shares every day, the number moves only when a new deal happens. A startup can say it is worth ₹3,000 crore based on a round from last year, even if conditions have changed. The company records the allotment of shares in a filing with the Registrar of Companies, usually the form PAS-3, which is one place the price per share can be checked.

Market cap and post-money valuation are both equity values: what the owners' shares are worth. Enterprise value adds the company's debt and subtracts its cash, to show the price of the whole business. It matters in acquisitions and when comparing companies with different debt.

A company with ₹1,000 crore of equity value, ₹200 crore of debt and ₹300 crore of cash has an enterprise value of ₹900 crore. When a story quotes a figure, check which of the two it is.

• Equity value or market cap: the worth of the shares.
• Enterprise value: equity value plus debt, minus cash.
• Post-money valuation: the private round price, counting the new money.
• Pre-money valuation: the same price before the new money goes in.

A private valuation is set by a few investors who may pay a high price for a stake, often with special rights such as protection if the company later sells at a lower price. When the firm lists, the public market prices every share without those rights, using current results and mood. If growth cooled or the market is cautious, the listing price can be lower than the last round.

This is sometimes called a valuation reset. It does not always mean the earlier investors lost money, because they may hold preferred shares with protections. It does mean the old headline number no longer describes the company. The guides on down rounds and revenue multiples explain related ideas.

For a listed company, the exchanges show the price and the company reports its share count in its filings, so anyone can compute market cap. Financial sites also publish free-float market cap, which counts only shares open to public trading and leaves out the promoters' holding. It is a different figure from full market cap, so a story should say which it means.

For a private startup, the number comes from news about a round, a company statement or a filing. Reports often use words like reportedly or about. Treat these as claims until a filing or the company confirms them. Dollar valuations also move when converted to rupees, so the same company can look larger or smaller depending on the exchange rate used.

Check whether the figure is a market cap, a post-money valuation, an enterprise value or a target for an IPO. A headline that says a startup is valued at a given amount may be using the last round, or the figure the company hopes to get at listing. Also check the currency and the date, since a dollar number from two years ago may not match today's rupee figure.

The first mistake is comparing a private valuation with a market cap as if they were measured the same way. A private figure is the price of one recent deal, set by a handful of investors. A market cap is the price of every share on the day. Putting them side by side can show a fall or a rise that is partly just the change of method.

The second mistake is mixing dates. A startup valued at a high figure in a round two years ago may be worth far less or far more today, but nobody will know until the next deal or a listing. The third mistake is mixing share counts. Market cap needs the number of shares outstanding. A fully diluted count, which includes options and convertible securities, is larger, so a valuation built on it is larger for the same price per share.

• Check the date of the figure.
• Check whether shares counted are basic or fully diluted.
• Check whether the number is equity value or enterprise value.
• Check the currency and exchange rate used.

For founders, a private valuation decides how much of the company is sold for a given amount of money. A higher valuation means less dilution, but it also raises the bar for the next round, because investors will expect the company to grow into the price. A later round at a lower valuation is called a down round, and it can trigger special protections for earlier investors.

For employees holding stock options, the number that matters is the price at which they can sell shares. Until a listing or a secondary sale, a valuation is mostly a paper figure. After listing, market cap makes the worth of the shares visible every day, which can feel exciting or uncomfortable depending on the move.

Market cap is the market's price for the whole company. Net worth, or book value of equity, is an accounting figure: assets minus liabilities. A strong brand can trade at many times its net worth. The related guide on valuation versus net worth covers this, and nothing here is investment advice.