Apple's $1 Trillion Value Doesn't Mean It's the 'Biggest' Company
Writing in The Conversation, Associate Dean Jerry Davis explains the importance of how we define corporate size.
By Jerry Davis, University of Michigan Ross School of Business
On Aug. 2, Apple became the first U.S. public corporation to achieve a US $1 trillion valuation, making it the largest company in the world – by one measure at least.
A New York Times article proclaimed that this milestone “reflects the rise of powerful megacompanies” that control a large and growing share of all corporate profits. It also warned that this phenomenon might be contributing to stagnant wages, a shrinking middle class, and rising income inequality, suggesting regulators may need to rein them in or break them up.
But what exactly defines a “megacompany”? And what would make it so powerful that it needs dismantling, like “Ma Bell” back in the 1980s?
As a scholar of corporations, I believe that if we want to understand – and regulate – big companies, it’s important to be clear on the very different meanings of “big.”
When Fortune magazine first wanted to create a roster of America’s 500 biggest corporations in 1955, revenue was the obvious way to think about size.
A “major corporation” was one that sold a lot of products. With almost $10 billion in annual sales, thanks to its 54 percent share of the U.S. auto market, General Motors topped Fortune’s list that year.
But GM was also big in most every other way, including its stock market valuation or “market cap” (where it was No. 1), assets (No. 2, after AT&T), and employment (also just behind AT&T at 624,000). Indeed, for much of the post-war era the biggest corporations were big in every way, and market cap was very highly correlated with revenues, employment, and assets.
Not anymore. The post-industrial corporation of today is often heavy on market cap but, like Apple, light on employment and hard assets.
A question of bigness
Apple is the biggest company in the world, if market cap is the only measure. But others, such as number of employees and tangible assets like property and equipment, have traditionally been used to show relative corporate size. The table shows how Apple and General Motors in 1968 – when it was among the highest-valued U.S. companies – stack up. And while Apple is far bigger in total assets, very few of them are tangible.
|Market cap||$1.02 trillion||$159 billion|
|Assets||$375 billion||$99 billion|
|Share of assets that are tangible like property and equipment||9 percent||39 percent|
|Sales||$229 billion||$160 billion|