Tesla is in the headlines, yet again, this time as it’s share price hits $500. The latest jump in price was triggered by the news that Tesla will join the S&P500 in December; it is now by far the most “valuable” car company in the world:
In 2020, Tesla has become the world’s most valuable car manufacturer and blown its sales forecasts out of the water.Tesla soars as much as 13% after the automaker nabs a spot on the exclusive S&P 500 index | Markets Insider (businessinsider.com)
What exactly does “most valuable company” mean?
Market capitalzation is the most common measure, in the financial press, to gauge how valuable a company is. Market capitalization is simply:
Number of shares outstanding (x) the share price
That is, how much it would cost to buy all the outstanding shares of a company. On this measure, Tesla is certainly the most valuable:
Another measure is Enterprise Value:
Market Capitalization (+) Total Debt (-) Cash & Cash Equivalents
Enterprise Value is the cost of how much it would actually cost you to buy the company, as you would not only need to buy all outstanding shares but also take on all debts of the company. You could offset some (or all) of the debt by the amount of cash & cash equivalents (i.e. liquid assets) that the company owns. Enterprise Value is often used as the theoretical takeover price of a company.
In this case, Tesla is still the most valuable car company but the other car companies are much closer in value:
I think we can safely say that Tesla is currently the most valuable car company in the world but maybe not by such a large margin as the financial press reports.
What about revenues, surely a company must have large revenues to justify a large valuation?
Tesla earns a fraction of the other car companies; investors are betting on Tesla growing these revenues substantially over the coming years…..
All data in the spreadsheet shown is provided by Excel Price Feed Add-in market data formulas (Yahoo Finance data).