Can Apple be worth more than Russia?
13.03.2017 Erika J. Wells 0 Comments
Reaching a value of $730 billion, Apple is more expensive than Poland, Switzerland and Norway. Similar headlines can be found on many foreign resources. Russian journalists reacted to this scandalous headlines: “Apple worth more than Russia”, and some media even tried to develop the idea and noted that in comparison with the “Apple” of the Empire there are all sorts of Rosneft (capitalization of $70 billion) and Gazprom ($60 billion) are not a serious fuss in the sandbox. But can a computer giant to cost more than the state?
No, and here’s why.
It seems incredible that the market value of Apple, or the company’s market capitalization reached $730 billion company more “expensive” than the whole country. With that said, Apple can claim a place in the second ten largest economies in the world.
Separate apples from pears
But this is not true. It makes no sense to compare two such values. With the same success you can compare… apples and peaches.
The fact that the market value of the company is tied to the expected value of all its future profits. Whereas GDP measures the value of goods and services produced by a country in one year.
According to Professor Paul de grove from the London school of Economics, to compare the size of the company and the state, but it is necessary to use the correct methodology.
“We will need to predict the future GDP growth of the country, and then you take the current rate and the note interest rate,” explains Professor de grove.
“Just the volume is not very much to tell us about the relative capacities of the company in relation to the economy. States are sovereign in the sense that they are able to establish rules of the game. They can impose company tax, and they do it.”
In such calculations, the indicator of the country will be multiplied several times. Thus, the comparative cost of the same in Poland will reach almost $2.5 trillion, and the country is significantly ahead of Apple.
Value added Apple
There is another reliable way of comparing two quantities. It is necessary to calculate the “value added” Apple and compare with the GDP of the country.
Dictionary of business terms Financial Times defines “value added” as the increase in the cost of anything that has been processed and can be sold in a new form.
Such a comparison makes sense because GDP actually measures the added value state: value of all goods and services minus everything that was imported.
“We’ll take Apple’s sales and subtract all that is in the iPhone, but not produced by the Apple,” explains Professor de grove.
“For example, some chips or screen, which produced somewhere in China. And the difference then would be that you might call value-added Apple. And this figure, we compare with GDP which is the value added of the country,” continues the economist.
In this count the relative value of Apple will decrease to four or five times, and the company is already 56th in the list of the largest economies. But even with these adjustments, it is obvious that Apple is a very big company.
Who sets the rules of the game
But if the company exceeds the volume of the state, does that mean she’s more powerful?
Professor De grove believes that this is not necessarily true.
“Just the volume is not very much to tell us about the relative capacities of the company in relation to the economy. States are sovereign in the sense that they are able to establish rules of the game. They can impose company tax, and they do it,” he explains.
The economist also draws attention to the fact that companies are experiencing more dramatic UPS and downs than the state. Market capitalization of the companies is calculated by multiplying the current value per share by the total.
“If you consider the market capitalization of a company like Apple, it can change rapidly,” says Paul de grove, and implies that after five years, Apple’s capitalization can be reduced to 100 or 200 billion dollars.
“Look what happened to Microsoft. At the time, Microsoft was the largest in the world. Now her weight has decreased. The company’s shares can go up, but with the same success can collapse,” concludes the economist.