# "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:** 12\ **Page:** 2
**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, 5:42pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/21 "2015-07-09T17:42:43Z")
> [@kopek](#): > > 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. That’s one valid way to value a business (or anything), but you might be buying $100m in actual worth and $900m in “goodwill” and future earnings value. So it’s kind of a slippery index. Businesses are more complicated even in the narrow consideration of purchase value than a pack of cookies, or even a house. ETA: This is where big acquisitions bite companies like Microsoft in the ass: they buy a relatively small-worth company because of the purported value of its intellectual property, existing customer base, proprietary technology, whatever… and then those assets prove to be a lot less valuable than assumed. So go read up on Microsoft and Nokia, as a right-now example. The “value” of Nokia as a company is right at the heart of the matter. ---
**Author:** ![kferr](https://avatars.discourse-cdn.com/v4/letter/k/71e660/32.png) [@kferr](https://boards.straightdope.com/u/kferr)\ **Post date:** [July 10, 2015, 1:15pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/22 "2015-07-10T13:15:50Z")
The company I work for has a stated goal of being a billion dollar company and the measure used is revenue. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [July 10, 2015, 1:31pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/23 "2015-07-10T13:31:01Z")
All of the measures are somewhat problematic, in that if it’s market cap, you have weird inflationary things going on with a lot of Internet-related companies that don’t happen to the same degree as with more traditional companies. You have the difficulty in measurement that **Amateur Barbarian** rightly notes, as well as a fair degree of “cool” and “gee-whiz” factor that plays into it, especially with startups that get gobbled up by larger, more established companies. (I suppose that’s counted as “goodwill” on the balance sheet) But in general, it does mean market cap, unless they specifically say revenue. I mean, if you were talking about people, and you knew a guy who makes 75k a year, and has a house, a couple of paid off cars, and a hundred thousand invested, would you say that he’s worth 300k or would you say he’s worth 75k? 300k, of course. The first is just income. ---
**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 10, 2015, 1:34pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/24 "2015-07-10T13:34:27Z")
> [@kferr](#): > > The company I work for has a stated goal of being a billion dollar company and the measure used is revenue. And I’ve seen this kind of internal boast measured by earning dollar one-billion… after twenty years of revenue. :rolleyes: ---
**Author:** ![Barkis\_is\_Willin](https://avatars.discourse-cdn.com/v4/letter/b/a183cd/32.png) [@Barkis\_is\_Willin](https://boards.straightdope.com/u/Barkis_is_Willin)\ **Post date:** [July 10, 2015, 2:08pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/25 "2015-07-10T14:08:50Z")
I understand why people think it should mean market cap, and I agree, but typically companies are referring to their gross revenue when they say they’re a “billion dollar company.” BTW, isn’t cap to rev ratio typically around 1? ---
**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 10, 2015, 2:43pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/26 "2015-07-10T14:43:59Z")
> [@Barkis\_is\_Willin](#): > > BTW, isn’t cap to rev ratio typically around 1? There is no typical. Too many factors, such as the type of industry and the aggressiveness of their capital structure. Walmart has a market cap of $236B, while its annual revenues are $485B. Retail revenues are usually much higher as margins are much lower. Companies that have large amounts of debt, may have a smaller market cap than those companies with little debt. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [July 10, 2015, 3:54pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/27 "2015-07-10T15:54:23Z")
> [@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. Warren Buffet lives in a 2000 square foot house and shops at Costco, too. ---
**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 10, 2015, 4:47pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/28 "2015-07-10T16:47:29Z")
> [@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. You’re a lot more likely to get to the millionaire line by being frugal and living “below your means” than by winning any form of lottery, be it Horatio Alger’s, tech buyout or Lotto. Save. Don’t spend unnecessarily. Save more. Live well. Wait. Oh, look, seven figures. It’s within the reach of many who fail to grasp it. ---
**Author:** ![WordMan](https://avatars.discourse-cdn.com/v4/letter/w/e8c25b/32.png) [@WordMan](https://boards.straightdope.com/u/WordMan)\ **Post date:** [July 10, 2015, 5:12pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/29 "2015-07-10T17:12:38Z")
I touch the VC/Private Equity world often through my job and networking. In general concepts, **msmith** is right: it is a general term for strong-performance mid-size. If the term is used specifically, it refers unambiguously to market cap. Too many VC and PE funded companies change hands pre-revenue. In Silicon Valley, a company that breaks out and actually achieves a $1Billion valuation is referred to as a “Unicorn.” Says something about the Gold Rush happening in tech - lots of prospectors, but striking gold is rare. ---
**Author:** ![pulykamell](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pulykamell/32/3166_2.png) [@pulykamell](https://boards.straightdope.com/u/pulykamell)\ **Post date:** [July 10, 2015, 5:35pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/30 "2015-07-10T17:35:50Z")
> [@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. Well, yes, of course. How is that not a millionaire? Now, the term doesn’t have the impact it once did with inflation and all, but that’s exactly what I would use to define one. Market cap to the OP. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 10, 2015, 5:55pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/31 "2015-07-10T17:55:21Z")
I assume a company number is based on sales unless clarification is provided. Why? 1. For smaller companies, it’s the only measurable value that matters. If you’re looking at a company because you like it’s net assets, the company is a failure. Successful companies are bought based on expectations of future earnings. 2. Companies are often valued at a multiple of gross receipts. In many industries (like service businesses), the average multiple is 1. So an accounting firm doing 1 billion of services a year is probably worth about 1 billion. ---
**Author:** ![Doctor\_Jackson](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/doctor_jackson/32/32_2.png) [@Doctor\_Jackson](https://boards.straightdope.com/u/Doctor_Jackson)\ **Post date:** [July 10, 2015, 6:08pm UTC](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050/32 "2015-07-10T18:08:27Z")
As indicated by the poll results so far, the phrase with no context is so open to interpretation as to be meaningless. It’s a marketing phrase, not an accounting measure. [Previous page](https://boards.straightdope.com/t/a-billion-dollar-company-iyho-what-does-that-mean/724050.md?page=1)