On January 25, Apple’s stock reached a record high of $454.45 per share, meaning the company is worth more than $420 billion based on its market cap. CNNMoney commented on the current valuation with a story entitled, “At $400 Billion, Apple is Worth More than Greece.” The provocative title was no doubt written to pique interest in the story, but is it really true that Apple is worth more than Greece? Not really and the reason is because CNNMoney’s approach for valuing Greece’s worth is wrong.
CNNMoney measures the value of Greece with the country’s GDP (currently at $305 billion), which is an estimate of the entire country’s economic production in a given year. But is a country only worth as much as it produces in a given year? If yes, than the analogous worth of Apple would only be its revenues for this year alone, approximately $108 billion.
GDP is to countries what revenues are to businesses. In a business valuation, the total company’s value not only includes the present year’s earnings but also discounted future years’ earnings as well. Thus, a proper valuation of a country’s value should forecast GDP into the future, discount these estimates to present value, and sum them to arrive at a valuation of the country as a business entity.
Valuing countries in this way is a bit silly and the analogy isn’t perfect, but at least it isn’t misleading like CNNMoney’s comparison. By the way, for more whimsical comparisons between Apple’s worth and other enormously valuable items (including other countries’ GDPs) check out the blog “Things Apple is Worth More Than.”