Apple's results were certainly impressive: the largest quarterly results for any company ever and obviously therefore the best Apple has ever achieved. But along with that we’ve had an outbreak of one of my pet peeves, the comparison of corporate turnover to the GDP of a country. Therefore we’ve variously had people insisting that Apple’s now the size of, or comparable to, Israel, Greece, Denmark and Hong Kong. Please people, please my fellow journalists, try to understand this. The GDP of a country and the turnover of a company are two conceptually very different things. We really shouldn’t be trying to compare one with the other.
As examples, here’s the Mail:
Apple today announced a record quarterly profit of $18billion (£11.8bn) – the biggest ever made by a public company.
The U.S. tech giant also posted record revenue of $74.6 billion (£49.2bn) for the three months to December 31, outstripping the quarterly GDP of Israel, Greece or Denmark.
And the Independent:
Apple’s total revenue for the first quarter was $74.6bn. If this trend continues for the next three quarters, that would bring total revenue to at least $298.4bn, which is a larger figure than the GDP of Hong Kong.
$18bn
Apple’s record-breaking profit, bigger than the quarterly GDP of Greece, equal to Yemen, and almost as big as Denmark
That last is particularly good as the $18 billion profit number is a better one to use than turnover, but slightly marred by the fact that the quarterly GDP of Greece is more like $60 billion and that of Denmark rather higher. And that of Yemen is about half that Apple number. So quite what brain spasm went on there I’m not sure.
The bit that I do know about is that we shouldn’t be trying to compare the turnover of a company with the GDP of a country. They are conceptually two entirely different things. And they cannot be compared against each other as a useful measure of the size of an economic organisation. GDP is the value added in an economy and turnover is just that, the turnover, not that value added. As an example one of the world’s largest markets is partially based in London. The global foreign exchange market, or that part of it that happens in London, turns over perhaps $2 trillion a day. And there’s 260 0r so trading days in a year (ignoring that Sunday part that happens in the Middle East). So we’ve $520 trillion of turnover happening in a country where the entire GDP in a year is around $2.5 trillion (rough numbers, £1.5 trillion). Obviously we’re measuring very different things here then. And turnover isn’t going to be a good guide if the other thing we’re measuring is that value added.
The easiest way to get to the right answer is to look at the way we calculate GDP from the income side. All of the value produced is obviously equal to all of the value consumed and both must be equal to everybody’s incomes. So, we can just add up the incomes of everyone in a country and we have our GDP number (technically more difficult than this but conceptually that’s it). And profits plus wages will get us pretty close to the right number, adding interest and rent gets us closer. So, by the same concept, the economic size of a company, something we can indeed compare to GDP, is the wages, profits, interest and rent paid by that company. That is the measure of economic size that at least conceptually equals the way we calculate GDP.
I’m not going to start trying to estimate Apple’s wage bill but say it’s $30 billion. Add that $18 billion profit at an annual rate and call it $100 billion. Somewhere around Slovakia or Morocco then. Yes, that’s incredibly impressive for a company, that’s a truly hefty economic organisation. But it’s just not the size of Hong Kong, Denmark or any of the others that are being used as comparisons.
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