The topic comes up whenever entrepreneurs want to raise money from investors. Let's break down this important issue into four sections. Those types include fair market value, market capitalization, enterprise value and book value. Fair market value is the price at which an asset, in this case a company, changes hands between a willing buyer and a willing seller.
Market capitalization is the sum total of the individual values of a company's capital stock.
Enterprise value equals the sum of a company's equity and its debt. Book value equals the total balance sheet assets of a company minus its balance sheet liabilities. Let's look at that one a little more closely. Entrepreneurs will face the valuation issue every time they raise capital through the issuance of equity. You need to know what the market capitalization of the company is to figure out how many shares to issue for a given investment amount.