Facebook Inc. (NASDAQ: FB) is a large-cap Internet information provider known for its social network, with over 1.5 billion monthly active users, and its second overall global Alexa ranking. The company also owns well-known subsidiaries such as Instagram, WhatsApp and Oculus VR. As a relatively young and dynamic company, Facebook has generally not pursued debt financing, so its capital structure is entirely built on equity capital as of December 2015. With a net cash position, Facebook's enterprise value is approximately $20 billion lower than market its capitalization, which grew very rapidly over the three years leading up to April 2016.

Equity Capital

Equity capital consists of the capital raised from the issuance of equity and the net profits that have been attributed to equity holders over the course of the business' operations. Balance sheet items such as common stock at par value, additional paid-in capital, retained earnings, Treasury stock and accumulated other comprehensive income represent different components of shareholder equity. Facebook had total equity capital of $44.2 billion as of December 2015, consisting of $34.9 billion of additional paid-in capital, $9.8 billion of retained earnings and $455 million of accumulated other comprehensive loss. Common stock at par value was an immaterial contributor.

Facebook's total equity capital grew from $36.1 billion in 2014 and $15.5 billion in 2013. Retained earnings growth has been a contributing factor to this expansion, growing from $3.2 billion in 2013 to $6.1 billion in 2014 and $9.8 billion in 2015. The largest component has been additional paid-in capital, which rose from $12.3 billion in 2013 to $30.2 billion in 2014 and $34.9 billion in 2015. In 2014, Facebook issued $14.3 billion of common stock related to acquisitions, with an additional $3.6 billion in share-based compensation and related tax benefits. In 2015, share-based compensation and related tax benefits totaled $4.7 billion.

Debt Capital

Debt capital includes all debt liabilities that are used to finance a business, such as bonds, unsecured notes and term loans. Some calculations of debt capitalization employ a broad definition of debt that includes operating liabilities or unfunded pension liabilities, but an analysis of debt capital more frequently considers the narrow definition. As of December 2015, Facebook carried no debt by this more narrow definition, though the company did have $1.5 billion in operating leases for data centers, office space and equipment. Operating leases are off-balance-sheet obligations around which there is disagreement on classification because these are real obligations, but they do not impact bankruptcy in the same way that debt does.

Even with the most broad definition of debt, which includes all operating liabilities, Facebook's debt-to-equity ratio was still low at 0.12 as of December 2015. Among large-cap Internet information provider peers, debt-to-equity can be as high as 0.44 for Baidu Inc. (NASDAQ: BIDU) and 0.37 for Twitter Inc. (NYSE: TWTR). For a company that is still relatively young and in a growth phase like Facebook, it is common to have small amounts of debt capital, especially if future cash flows are uncertain in a rapidly changing industry, such as application software or Internet information services. Nevertheless, Facebook's debt capitalization is especially low among its peers.

Enterprise Value

Enterprise value (EV) is a metric designed to capture total firm value based on the market prices of common equity, preferred equity and debt less cash and investments. EV is useful for projecting potential acquisition prices or comparing companies with dissimilar capital structures using a ratio such as enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA). As of April 2016, Facebook's market capitalization was $323 billion, and its EV was lower at $302 billion. The difference between the two can be attributed to Facebook's net cash position, which includes $4.9 billion in cash and cash equivalents and $13.5 billion of marketable securities. With more cash than debt, EV is below market cap. Facebook's enterprise value was $55 billion in April 2013, so compounding annual growth was 76.4% over the three years leading to April 2016. While total cash has risen, the expansion has been driven primarily by appreciation of Facebook stock.

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