Norwich, Norfolk -- (SBWIRE) -- 03/29/2012 -- Last week a rumour ran around the news networks, starting at CNN, which had people scratching their heads in disbelief. It seemed that, with a stock market value of $500 billion, Apple is the 20th biggest economy in the world, worth more than – for example – Poland, whose Gross Domestic Product (GDP) is around $470 billion.
As amazing as this seems, it’s not strictly true. This is because a company’s market value is linked to the expected value of all future profits. GDP, on the other hand, is a measure of the value of goods and services a country has produced in a single year. You might as well compare apples to onions.
“This news was obviously released to provoke a reaction,” said a source within Morton Solutions, a Norwich-based marketing company. “Still, it makes you think. Huge corporations like Apple have a truly staggering bank balance, making them a very powerful influence on the global economy and the international stock market.”
So can the relative power of a company be compared with that of a country? Yes, says Professor Paul De Grauwe of the London School of Economics, but it must be done properly. De Grauwe estimates Apple's relative value would shrink four or five-fold if you compared them properly. This would make it the 56th largest economy in the world, 36 places behind Poland, just ahead of Bangladesh and just behind Vietnam.
“Things seem a little more realistic when compared rationally” said the source at Morton Solutions. “But it is worth considering that even with these corrections it is true that Apple is a big company, and still just as wealthy as some of the world’s smaller countries.”
But if a company is bigger than a country, does that mean it is more powerful? Not necessarily, says Professor De Grauwe. "Just looking at the size doesn't tell us much about relative power of the company versus the country. Countries, after all, are the ones that set the rules of the game. They can tax companies, and they do."
“Large companies tend to have dramatically shifting values.” said Morton Solution’s managing director, Lewis Morton, “It is entirely possible that that in five years the market cap of Apple could have dropped to $100bn or $200bn. It happened to Microsoft. They used to be one of the biggest companies in the world, now it has scaled down. Fortunes change. Thankfully, countries tend to be a little more stable.”
Source: http://www.bbc.co.uk/news/magazine-17344386
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