Slashdot Mirror
Which Company Is the Largest?
Fudge Factor 3000 writes "Apple and Exxon are fighting it out to be the company with the largest market cap. Tuesday, Apple pulled ahead. It is hard to believe a tech company can beat out an oil giant, but is the market cap really the measure of the size/influence of a company? It is certainly the simplest metric to consider. Ars is running an excellent article on how to measure the size of a company. They discuss different metrics such as cash balance, revenue, number of employees, etc."
Yes they did. They just called it cash flow, and explained why this was the best measure of profits.
People gotta live outside the west too.
Does it really matter? Honestly, who gives a shit what company is the biggest?
I only care about the products/services they produce.
what is the future of a civilisation whose most capitalised stock is gadget manufacturer?
Of course it isn't. If it were, then the gyrations of the DJIA would mean that the total size of the representative corporations in the stock market have grown and shrunk across a 10% margin over the past couple of weeks. Those companies, and by extension the rest of publicly traded corps, and indeed business in general, have clearly not been growing and shrinking that much in any size except solely their market cap. The market cap is undeniably a contrived measure that is primarily an artifact of nothing but finance. Which in the past generation has become almost completely independent of underlying business, and even independent of any underlying reality except preferential treatment by the powerful.
--
make install -not war
Market cap is a completely nonsensical way of saying "what's the largest company". Market cap is simply whatever irrational price the market has placed upon a company, and has zilch to do with its actual value as a cash generating engine.
For that, one has to look at book value or intrinsic value, as defined by Graham, Dodd, Buffett and others in the value investing fold. Book value (or carrying value) is simply assets minus liabilities minus intangibles (e.g. goodwill, the paid in capital during acquisition of other companies in excess of their book value). Intrinsic value, more or less, includes the net present value of discounted cash flows looking probably five or six quarters forward (any more than that is pure speculation as companies tend not to forecast out more than a year or two from the known inputs into their business).
A third way of looking at it is net working capital plus net operating cash flows... paring it down to inventories on the balance sheet side (working capital) and cash flows related directly to the sale of their goods/services, and not via financing activities, acquisition, etc. This is a really strong measure of how powerful a business is. By almost all of these measures, Apple is pretty strong, but their market capitalization seems to have them overvalued several times relative to what their future cash generating ability truly is.... which is why you won't see any offers for acquisition any time soon, not that Apple would entertain any of them anyway.
Although Apple is on top at the moment, they have a very volatile stock. This tend to discourage long-term investments generally accounts for less than 15% of a well balanced portfolio. Microsoft and also Exxon on the other hand have a stable stock price and they both tend to play it generally safe. It might not please stock holders who were looking to make money quickly but perhaps is how a company can achieve more maturity.
So yeah, they are big now but they might be tiny in a few months.
Views expressed do not necessarily reflect those of the author.
It's not the "making too much money" part that needs investigation, and really just correction. It's the "not paying taxes" part. Corporations, including rich tech corps, don't pay the costs the public pays for them to operate. In 2010, corporations paid only $176B in taxes; individuals paid over 100x that much. Corporations cost the public far more than 1% of our 2010 expenses. The $TRILLIONS spent by the public bailing them out of their failures, and of the failures of other corps they depend upon, is the bulk of our financial problems.
That they don't pay what they cost is the problem. That only about 50% of voters, the "liberals", even realize that's the problem is what keeps the problem getting worse. It's you Republicans who are to blame, which is why you're corporations' favorite suckers.
--
make install -not war
Yes, that is why most companies do it.
Cash flow is not profit. It is a derived measure of revenues, mismatched to costs.
The best measure of profits is the actual net revenue return after expenses invested are subtracted.
--
make install -not war
Is that SJ and Tillerson duking it out, mano a mano?
Are they launching missiles at each other's corporate HQs?
No, I didn't think so. They're just minding their businesses and the stock market is setting a price on their shares. Hardly what I'd call battling it out. Strange metaphor.
Here is another way to think about it.
What if the company disappeared over night? How "important" are these companies?
If Apple disappeared, people wouldn't have their toys and music anymore and people who actually get work done with Apple products (like designers or movie editors) would have to migrate to other platforms like Linux or Windows.
If Exxon disappeared, the world would have a temporarily huge reduction in the available oil until competitors could pick up the slack which could take a long time in which case the whole world will fall apart (only slightly exaggerating).
So I say that Exxon is way more important than Apple.
By that metric, Microsoft, IBM, and Oracle are also way more important than Apple.
With the recent spurt in the stock price, Microsoft's market capitalization has reached nearly $600 billion, putting it back in first place ahead of General Electric's $475 billion market cap.
Tech stocks are a bit more volatile than that of oil companies. Back then, Microsoft looked even better than Apple does today, virtually unstoppable.
This sentence from the last page sums it up nicely:
Most pundits would say that Exxon is the larger company by far in every comparison that matters, particularly when you're thinking about who does or does not drive the American economy.
I would go a step further and say that fossil fuel extraction is the most important sector of the economy, at least from the perspective of what makes industrial civilization possible and allows human beings to number over 7 billion. After all, the last few centuries of technological progress and human biomass growth can largely be attributed to how we've creatively employed the vast armies of energy slaves liberated by the combustion of fossil fuels to do things like power generators, run combines and tractors, and make plastics and fertilizers. And human biomass proliferated in the 20th century largely due to our ability to convert stocks of low entropy stored solar energy into edible calories and fertilizers. The energy sector (which is dominated by fossil fuels) subsidizes other service and production sectors and makes our highly complex society possible (1).
So Apple or some bank may be largest or "most important" based on some metric employing fiat currency (that's being inflated away by the Federal Reserve) or the Wall Street casino's latest valuation based on pixie dust, but energy (or more precisely, exergy) is what really matters for civilization; everything else is just playing with your food.
(1) Joseph Tainter, "Complexity, Problem Solving, and Complex Societies."
http://www.oilcrash.com/articles/complex.htm
See also:
Ayres and Warr, "Accounting for Growth: The Role of Physical Work."
http://www.fraw.org.uk/files/economics/ayres_2005.pdf
Cash flow isn't the same as profit. And it is somewhat tempered by the comparison that MS has twice the number of employees as Apple. Bear in mind Apple counts their employees slightly differently than MS. Apple has lots of part-time retail employees while MS has far fewer. Apple uses the equivalent employee hours where it counts 40 hours of a part timer as a full time employee. It is not completely 1:1 as full time employees normally receive benefits that part-time ones; however, this may be offset by other overhead in hiring and maintaining a part-time labor force.
Well, there's spam egg sausage and spam, that's not got much spam in it.
If Jobs' oil corp invented the Mac, the iPhone, the iPad, or the NeXT, Pixar, or any of the other revolutionary innovations Jobs has led,
Apple "invented" the desktop computer, the smartphone, the tablet computer, and the workstation?
Way to have reading comprehension. Yes long ago people predicted apples failure most people have but that was ten years ago, no one has certainly done it with in the last few years.
He didn't say they are the same, just that they DID in fact mention net profit, and argued in detail how FCF was a better metric (which of course is debatable, but many do agree with that claim).
The real problem with the article is not that claim, though, but the fact that they listed completely wrong free cash flow numbers for some of the companies in their chart. Even thinking Barclays could have $177B of free cash flow in a year is absurd, and makes me question the rest of the author's analysis. That number was their TOTAL cash on hand as of this year. Their free cash flow was closer to $26B. Not bad, but off by 7x. Doh!
In 2010, corporations paid only $176B in taxes [fool.com]; individuals paid over 100x that much.
Individuals paid 17.6 trillion dollars in taxes? The link said it was $1.8 trillion, which would make 10x, not 100x.
No, Apple invented its versions of each of those, which revolutionized each of their industries. Most innovation, and nearly all the most revolutionary innovation, is not the original invention but rather an improvement of it.
--
make install -not war
The measure of cash flow as profits is fundamentally wrong. The fact that profit accounting can be rigged doesn't make cash flow a better profit measure, since cash flow also can be (and is) rigged to cook the books. Hiding debt from profits or cash flow is done all the time by corrupt corporations.
There's no accounting trick that makes any accounting technique more resistant to book cooking. Only audits by parties with overriding access, the interest in catching fake books, and the power to report them make for reliable profits reporting. Keeping "profits" defined simply and accurately as "revenue from expenses, minus the expenses" is the only way to meaningfully report profits.
--
make install -not war
No, corporations are privileged groups that own assets themselves. And spend on benefits for privileged people, like their executives, that are consumed without taxation. Groups that add many additional expenses to the public, like policing, investigations, courts, wars, trade diplomacy and bailouts. They are taxed at under 1% the total rate that humans are taxed in this country, but consume much more than half the expensive operations.
Money they don't pay in taxes they spend in foreign economies more than they spend here, and on Americans who are much less productive (bankers, lawyers, consultants, media spinners) than people to whom they must pay for their core operations.
The current corporate profits are higher than ever before in American history. Corporations are spending on neither current nor future employees (as we've seen for going on 3-5 years now). They aren't even investing in other corporate equity. With the exception of pure financial speculation, which keeps crashing the stock market and destroying real assets with every cycle. And the new exception of unlimited, secret and anonymous bribes, er, donations to politicians and their henchmen, er, henchcorps.
Somehow when getting government benefits corporations are people, but when facing liabilities like convictions and taxes corporations are not people. That is an obvious scam, that has brought this country just past the brink of catastrophe several times in just the past decade.
--
make install -not war
You're right. That's why I have an accountant do my taxes :).
--
make install -not war
It's possible to lie about anything, but it's a lot easier to invent fake profits than fake cash[1].
Turnover is vanity, profit is sanity - but cash is reality.
[1] Unless you're a central bank ;-)
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Cash flow is riggable by hiding debts and defaults on them, or just endlessly rolling them over into new debt instruments (with higher deferred interest). Which is an essential part of most "post"-Enron corporate finance, and of most outstanding debt.
--
make install -not war
Where business fraud is illegal, businesses are regulated. You do understand that "illegal" requires a regulation, right?
Besides, there's a vast array of examples. Just look at the businesses operating in North America before the USA and its states were established and regulated them. Those unregulated businesses genocided whole societies, ruined whole ecosystems, and of course destroyed whole economies with them. Look across Africa and any other post-colonial region where law doesn't rule, but rather corporations do: their economies are devastated. Hell, I even mentioned Somalia by name. The warlords there fight over who gets to be the top broke-ass filth dweller.
Why do you even have to ask for examples? Can't you think clearly for yourself about the overwhelming content of human history?
--
make install -not war
I had two, different complaints. I'm going to try again because you didn't understand me at all. And you should really read up on Tax incidence, because you are really not understanding me.
1) Corporate taxes are a way of hiding taxes from people who actually pay them. People who advocate corporate taxes often do so as a proxy for taxing the wealthy. That is dishonest, and it is not a good practice of government.
2) Assuming your goal is taxing wealthy individuals, you are SOL because government does not get to choose who pays the tax, that is determined by market forces.
Ok, saying this really says that you don't know anything about Tax Incidence, because price elasticity is a key concept in studying Tax Incidence. Do your homework before trying to argue about something like this, otherwise you just come off is totally ignorant.
That's a nice theory, but it hinges entirely on the choices the corporation makes in determining how to pay the tax. They will never choose to undercut shareholder value unless market forces lead them to believe that they must in order to remain competitive. And that, of course, is my whole point. If you believe they won't pass costs on to consumers/employees, you are deluding yourself. They will pass on the cost whenever they can.
But lets look at the alternative. Suppose you raised the money through income tax. This puts the same decisions in the hands of the corporation. The will have to raise their wages to keep employees, and they will need to lower costs to make sure their products stay affordable. But if they can't do that, they may decide to reduce their payouts to shareholders to make up the difference. In the end, the exact same financial pressures are placed on the corporation, and the same type of decision making takes place.
The government actually has no say in who will end up paying the tax, all they can do is choose where to collect it. Politicians who want to collect it from corporations want their constituents to get a bill from someone else, not them. You shouldn't fall for that kind of lie.
Try to live 6 months without your Macbook, smartphone, or iPod. Now try the same without petroleum based products. 'nuf said.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
The NY Times article that your source is based on has been discredited:
http://www.washingtonpost.com/business/the-truth-about-ges-tax-bill/2011/04/05/AFZm0L9C_story.html