Update: When the markets closed on August 10, 2011, Apple ended up as the company with the largest market capitalization in the world ($337.17 billion), surpassing Exxon Mobil ($330.88 billion). This generated a new flurry of discussion about what "market cap" really means, so we felt it appropriate to re-publish our primer from earlier this year on the different ways to judge corporate valuation. Please note that we have not updated the data in this feature (originally published in February 2011), but we think the principles discussed in the piece are worth highlighting.

So the order came down from the Orbiting HQ, and I'm here to make it happen:

Make people a little more smarter than "DURR HUGE MARKET CAP DURRR!"

The data that follows was culled from Capital IQ, a division of Standard & Poors, is current as of February 4, 2011, and reflects results over the last 12 months unless otherwise noted. Let's start with the simplest metrics.

Market cap

Rank Company Market capitalization ($ billions) 1 Exxon Mobil 414.2 2 Apple 318.8 3 BHP Billiton 261.1 4 PetroChina 259.0 5 Microsoft 233.2 16 Google 195.1

Measuring companies by market cap has a couple of advantages:

It's really easy to talk about, and reported by any data provider worth its salt

Cap sizes make for sexy sound bites

Since they often change very quickly, cap size metrics generate a lot of easy news stories.

It's also a perfectly respectable metric in some cases. What we're looking at here is the total value of all stock in the company, assuming that all of it was sold at the current market price. The market cap is, of course, only of theoretical importance, because actually selling every share all at once would make a tremendous impact on the stock price itself, thereby changing the total value very quickly.

There is no single driver of this value. In the end, it's the net effect of millions of buyers and sellers agreeing to a fair value for the shares in an auction-style open market. Some of those investors might arrive at their fair prices by estimating future cash flows, others look more closely at dividend yields or rates of earnings growth, and some don't do any math at all and just buy or sell because some expert told them it was a good idea.

Looking at the top five list above, you'll notice that ginormous producers of oil and other natural resources tend to do well by this metric. Exxon and PetroChina literally provide fuel for two of the largest economies in the world and BHP Billiton sells the materials used for building those economies. Investors clearly see some value in that.

Apple is number two by virtue of its highly profitable iPhones and iPods. Few companies can match the unique blend of big sales, wide profit margins, and rampant growth that Apple sports today.

In the summer of 1999, Microsoft's market cap was an absolutely massive $474 billion for a short while, and the company looked ready to challenge the mythical trillion-dollar level in short order. Windows 95 and Microsoft Office took the company that far, and then bad things started to happen. Today's cap is less than half as large, as Mr. Softy has suffered numerous missteps over the last decade. Rather than being inflated by promises of growth, Microsoft looks and acts like a safe but boring income-and-value stock now, complete with dividends.

You could have bought Google shares at today's prices more than three years ago. It's valued like a moderate-growth stock rather than the habitual outperformer it actually is, reflecting a lack of investor confidence in a business model largely based on online advertising sales. The dot-com crash is ancient history, but it has clearly left some scars.

The market cap can't tell you the economic value of a company, nor is it exactly a measure of what the company is worth. It's a theoretical stock-market measure; while both entertaining and sometimes useful, we need to look at a range of other metrics to judge the "size" of a company.

Enterprise value

Rank Company Total enterprise value ($ billions) 1 General Electric 582.1 2 Exxon Mobil 427.1 3 PetroChina 346.3 4 Apple 289.4 5 American International Group 267.8 18 Microsoft 202.0 30 Google 163.6

Enterprise value is a cousin of the market cap, as you might have guessed form the high number of repeat performers on this list. It's the market value of the company, minus cash balances and plus debt. It's what another company would have to pay in order to make an acquisition. It's another theoretical construct, and actual buyouts tend to command something like a 20 percent to 50 percent premium on top of the enterprise value. You have to convince the current shareholders that the deal is better than simply hanging onto their shares as the company goes about its business all alone.

Lots of cash moves you down on this list, because the hypothetical buyer basically buys a wallet with money inside. Conversely, high debt makes you expensive because the buyer would have to shoulder that load.

So Apple drops a couple of notches thanks to bulging bank accounts and no debt, Microsoft falls all the way to number 17 for similar reasons, and Google looks downright inconsequential from this angle when you're used to thinking about Big G as a top-20 name (That mindset will change very quickly if you keep reading, by the way). All of our tech darlings have substantial cash accounts and little or no debt. More on that when we start talking about cash balances.

The big movers here are General Electric and AIG. The technical term is "leveraged balance sheet," meaning that these companies have loaded up on debt in order to make bigger moves in their respective markets. It's a popular way to juice up your growth when times are good and loans are cheap, but works less spectacularly when creditors ask for high interest or come a-knocking to look for repayments. Banks, insurance companies, construction firms, and expanding restaurant chains do this all the time, but tech giants rarely go down this route. BHP Billiton fell off the top-five list because it isn't neck-deep in debt, but don't worry: the mining giant slides in at number nine, right behind Shell and ahead of Toyota.

In many ways, you really don't want to lead the pack in this particular competition. General Electric is the most expensive potential buyout in the world because it's saddled with $479 billion—nearly half a trillion dollars—in long-term debt and only $123 billion of cash. It almost makes you wonder where GE's profits are going, until you remember that the conglomerate's largest division is the GE Capital banking operation. GE behaves like a large bank because it is one. But that debt load still looks ugly.

And speaking of mountainous cash and debt balances...