# "A billion dollar company" - IYHO, what does that mean? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [July 2, 2015, 3:19pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050 "2015-07-02T15:19:49Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Nars\_Glinley](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/nars_glinley/32/8177_2.png) [@Nars\_Glinley](https://boards.straightdope.com/u/Nars_Glinley)\ **Post date:** [July 2, 2015, 3:19pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/1 "2015-07-02T15:19:49Z")
If heard the phrase, “a billion dollar company”, what you assume that the billion dollars represented? Sales? Assets? Market capitalization? Something else? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 2, 2015, 3:20pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/2 "2015-07-02T15:20:29Z")
Market capitalization. ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [July 2, 2015, 3:21pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/3 "2015-07-02T15:21:02Z")
I assume they’re talking about market cap. I could be wrong. ---
**Author:** ![Jackknifed\_Juggernaut](https://avatars.discourse-cdn.com/v4/letter/j/9de053/32.png) [@Jackknifed\_Juggernaut](https://boards.straightdope.com/u/Jackknifed_Juggernaut)\ **Post date:** [July 2, 2015, 3:23pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/4 "2015-07-02T15:23:18Z")
I agree that it should be market cap, but in my experience, the term is most often used to describe revenues. ---
**Author:** ![astorian](https://avatars.discourse-cdn.com/v4/letter/a/ad7895/32.png) [@astorian](https://boards.straightdope.com/u/astorian)\ **Post date:** [July 2, 2015, 3:25pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/5 "2015-07-02T15:25:35Z")
I voted for sales. For a comparison… if you added up the value of ALL of a person’s assets (house, property, investments, 401k plane, et al) and they came to exactly one million dollars, would you call him a millionaire? I wouldn’t. ---
**Author:** ![Derleth](https://avatars.discourse-cdn.com/v4/letter/d/b9e5f3/32.png) [@Derleth](https://boards.straightdope.com/u/Derleth)\ **Post date:** [July 2, 2015, 3:36pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/6 "2015-07-02T15:36:33Z")
Sales is wrong because, one, a lot of companies don’t actually have sales; holding companies are an example. They own valuable assets and are, therefore, valuable themselves, but they don’t actually sell anything. Two, sales is too volatile. A single storm could, for example, knock down a fruit company’s near-term sales figures, but as long as it still owns good farmland and can hire people to cultivate and pick the fruit, its actual value as a company shouldn’t be diminished that far. Market capitalization is what the market values all outstanding shares at. It’s literally what the people who buy and sell pieces of companies have agreed that all of the potentially purchasable pieces of that company put together are worth. It’s hard to imagine a more direct measure of what a company is worth. ---
**Author:** ![Bone](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bone/32/407_2.png) [@Bone](https://boards.straightdope.com/u/Bone)\ **Post date:** [July 2, 2015, 3:38pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/7 "2015-07-02T15:38:49Z")
Market cap doesn’t work very well for privately held companies whose valuations aren’t available from publicly traded markets. If the phrase alone was used, I would think market cap though. Most times if it’s not market cap, the speaker will clarify if they know what they’re talking about. Billion dollars in [assets, revenues, net income, EBITDA] ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 2, 2015, 3:40pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/8 "2015-07-02T15:40:10Z")
> [@astorian](#): > > I voted for sales. > > For a comparison… if you added up the value of ALL of a person’s assets (house, property, investments, 401k plane, et al) and they came to exactly one million dollars, would you call him a millionaire? I wouldn’t. So I have to earn a million dollars to be a millionaire? Is that per year? Per lifetime? ---
**Author:** ![Darth\_Panda](https://avatars.discourse-cdn.com/v4/letter/d/ee7513/32.png) [@Darth\_Panda](https://boards.straightdope.com/u/Darth_Panda)\ **Post date:** [July 2, 2015, 3:41pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/9 "2015-07-02T15:41:25Z")
Market cap, always. That’s the best estimate of what it would cost to purchase the company. 5 dollar sandwhich 50,000 dollar car Million dollar house Billion dollar company … ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [July 2, 2015, 3:53pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/10 "2015-07-02T15:53:10Z")
Other, could be any of the choices, or even something else. ---
**Author:** ![steronz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/steronz/32/11765_2.png) [@steronz](https://boards.straightdope.com/u/steronz)\ **Post date:** [July 2, 2015, 4:12pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/11 "2015-07-02T16:12:53Z")
As a complete financial layperson, if someone says that a company is a “billion dollar company” I immediately think revenue. I probably should think in terms of market capitalization but I don’t. It’s hard for me to think of, say, early Facebook as a billion dollar company while they had very little actual income. > [@Fear\_Itself](#): > > So I have to earn a million dollars to be a millionaire? Is that per year? Per lifetime? Being a millionaire is about the lifestyle, not a number. I’d say you either need several millions in the bank to where you don’t have to work, or an annual income of close to a million bucks. I’m sure my parents have a couple million in their retirement accounts that they’re currently living off of, but it seems silly to call them millionaires when they shop at Costco and drive a Camry. ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [July 2, 2015, 4:49pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/12 "2015-07-02T16:49:52Z")
Market capitalization. > [@steronz](#): > > … > Being a millionaire is about the lifestyle, not a number. I’d say you either need several millions in the bank to where you don’t have to work, or an annual income of close to a million bucks. I’m sure my parents have a couple million in their retirement accounts that they’re currently living off of, but it seems silly to call them millionaires when they shop at Costco and drive a Camry. Actually, that is a pretty accurate picture of most millionaires. There are way more millionaires that own a few Subway franchises and drive old Camrys than there are oil tycoons or hedge fund rock stars. [The Millionaire Next Door](http://www.amazon.com/The-Millionaire-Next-Door-Surprising/dp/1589795474) is an interesting book about the habits and backgrounds of most American millionaires. You’re correct that it’s about a lifestyle - a pretty frugal and ordinary one of living below one’s means. ---
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [July 2, 2015, 5:01pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/13 "2015-07-02T17:01:32Z")
> [@Fear\_Itself](#): > > So I have to earn a million dollars to be a millionaire? Is that per year? Per lifetime? I recall that the Economist’s style guide specifically calls for millionaire to apply only to a million in income, never assets. It makes sense since a middle class retirement requires more than a million dollars in assets. Nobody would say a senior living facility in Florida is made up entirely of millionaires just because their 401(k) was 7 figures. Not that most of us have to follow the Economist’s style guide. ---
**Author:** ![steronz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/steronz/32/11765_2.png) [@steronz](https://boards.straightdope.com/u/steronz)\ **Post date:** [July 2, 2015, 5:15pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/14 "2015-07-02T17:15:38Z")
> [@Trom](#): > > [The Millionaire Next Door](http://www.amazon.com/The-Millionaire-Next-Door-Surprising/dp/1589795474) is an interesting book about the habits and backgrounds of most American millionaires. You’re correct that it’s about a lifestyle - a pretty frugal and ordinary one of living below one’s means. And as a catchy title and a way to rethink success, I think “_The Millionaire Next Door_” is great, but I don’t think the author ever intended to redefine the popular usage of the word. In fact, the title doesn’t work without that popular assumption. “Millionaire next door? Wahhhh?! But millionaires are rockstars and tycoons! This title makes no sense! I gotta see what this book is all about!” ---
**Author:** ![MEBuckner](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mebuckner/32/2896_2.png) [@MEBuckner](https://boards.straightdope.com/u/MEBuckner)\ **Post date:** [July 3, 2015, 12:00am UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/15 "2015-07-03T00:00:49Z")
A “millionaire” was certainly originally understood to be a person with _assets_ worth a million [pounds/dollars/bucks]. If someone has a billion dollars in the bank, he’s certainly a “billionaire”, even though he may “only” earn a few tens of millions of dollars a year in interest. And a million dollars may not be “worth what it used to be”, but a million in assets is still several times the average American net worth (and over twenty times the _median_ American net worth). (And I therefore voted for the “market capitalization” option.) ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [July 9, 2015, 2:10pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/16 "2015-07-09T14:10:36Z")
What MEB says, however, if someone says Millionaire it’s true that what first pops into mind is someone much richer. However, a million bucks in _income_ a year leaves too many people out. If I were to _call_ someone a millionaire, I’d feel comfortable saying so if they fit the “Elmer J Fudd” definition: rich enough to own a mansion and a yacht, even if they don’t actually do so. Someone with just a million in assets could not buy them and upkeep them comfortably. Ten million bucks in assets, yes, they could easily afford a mansion and a yacht. Someone with a million bucks in income a year could afford several. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 9, 2015, 2:46pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/17 "2015-07-09T14:46:03Z")
In the investment banking world when you refer to a _billion dollar company_, you are referring to the amount if its annual revenues. Market cap would be less useful, because you haven’t considered the amount of _net debt_ that the company has. A more useful measure is _enterprise value_, which is the market capitalization plus the net debt. The _enterprise value_ is normally considered what the company is worth. ETA: Also the Forbes and Fortune lists of companies are ranked based upon annual revenues, not market cap. ---
**Author:** ![Amateur\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/a/59ef9b/32.png) [@Amateur\_Barbarian](https://boards.straightdope.com/u/Amateur_Barbarian)\ **Post date:** [July 9, 2015, 2:59pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/18 "2015-07-09T14:59:32Z")
I agree with the general leaning that it’s a slippery term, one like “middle class” or “disposable income,” that can be interpreted pretty much however the writer/speaker and reader/listener care to… and if there’s a bit of a disconnect between the two parties’ understanding, it serves someone’s needs. I’d say it refers to annual revenue more than anything else; market cap for a public company that’s stable; more nebulous valuations when those suit the sayer’s purpose. ---
**Author:** ![kopek](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kopek/32/337_2.png) [@kopek](https://boards.straightdope.com/u/kopek)\ **Post date:** [July 9, 2015, 3:13pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/19 "2015-07-09T15:13:54Z")
I know I’m wrong about this but ---- to me it always means that it would cost me a billion dollars out of my pocket to buy it and make it my personal property/business. That is the first thing my brain goes to any time the phrase is used. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [July 9, 2015, 3:22pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/20 "2015-07-09T15:22:47Z")
> [@astorian](#): > > For a comparison… if you added up the value of ALL of a person’s assets (house, property, investments, 401k plane, et al) and they came to exactly one million dollars, would you call him a millionaire? I wouldn’t. > [@MEBuckner](#): > > A “millionaire” was certainly originally understood to be a person with _assets_ worth a million [pounds/dollars/bucks]. If someone has a billion dollars in the bank, he’s certainly a “billionaire”, even though he may “only” earn a few tens of millions of dollars a year in interest. And a million dollars may not be “worth what it used to be”, but a million in assets is still several times the average American net worth (and over twenty times the _median_ American net worth). > > (And I therefore voted for the “market capitalization” option.) Actually it’s “net worth” not “assets”. As in Net Worth = Total Assets (cash, house, investments) - Total Liabilities (mortgage, loans, other debt). “Billion dollar company” is a colloquial expression so all the answers are more or less correct. It could be a billion dollars in sales. It could be a billion dollars in profits (revenue-expenses) It could be a billion dollar net worth (assets minus liability) It could be a billion dollar valuation (i.e. value using specific valuation models like Free Cash Flow to Equity, APV or options pricing models) It could be a billion dollar market cap (total value of all outstanding shares) Basically it all means the same thing. A “successful mid-market company”. IOW not a “mom & pop” or “startup” but not on the level of a Fortune 500 company. i.e. “We started with nothing 5 years ago, but now we’re a billion dollar company.” [Next page](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050.md?page=2)