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.
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.
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.”
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.
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.
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.
I assume a company number is based on sales unless clarification is provided. Why?
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.
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.
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.